GST council Announces Major rate Rationalization, New Slabs Effective September 22nd
New Delhi – In a important overhaul of India’s Goods and Services Tax (GST) system, the GST council, led by Finance Minister Nirmala Sitharaman, has announced a simplification of tax rates to primarily two slabs – 5% and 18% – effective September 22nd. The changes, finalized after extensive deliberations and a consensus-based approach, aim to streamline the tax structure, reduce compliance burdens, and boost economic growth.
Sitharaman clarified that the reforms were not influenced by recent tariff-related issues, stating, “The tariff turmoil is not a matter which influenced the GST reform, because we have been at it now for more than one-and-a-half years… None of this has anything to do with the tariffs.” She highlighted the ongoing work of various Groups of Ministers focused on rate rationalization, insurance, and the phasing out of compensation cess linked to loan repayments.
While some states initially expressed concerns regarding potential revenue losses – estimated between Rs 80,000 crore and Rs 1.5 lakh crore – officials confirmed that the final decision was reached through consensus, prioritizing a “pro-people proposal.”
Revenue Secretary Arvind Shrivastava described the proposal as “fiscally sustainable,” projecting a net revenue implication of Rs 48,000 crore based on 2023-24 consumption data. He emphasized that this figure should not be characterized as a “revenue loss,” but rather a “net revenue implication.”
Key changes announced include the correction of inverted duty structures in the textiles and fertilizer sectors. Specifically, GST rates on manmade fibre and yarn have been reduced to 5% from 18% and 12% respectively. Inputs for the fertilizer sector, including sulphuric acid, nitric acid, and ammonia, will also see a rate reduction to 5% from 18%.
The reforms also include simplified refund procedures and streamlined processes for Micro,Small,and Medium Enterprises (MSMEs). Furthermore, individual life and health insurance policies have been exempted from GST.
Industry leaders have welcomed the changes. Chandrajit Banerjee, Director general of the Confederation of Indian Industry (CII), called the decisions “pathbreaking,” stating, “CII not just welcomes the GST Council‘s forward-looking decisions… but also sees this as pathbreaking. This clarity will ease compliance, reduce litigation, and give businesses and consumers the predictability they need.” The CII assured that industry woudl “swiftly pass benefits to the consumers” and collaborate with the government for a smooth implementation.