New GST rates: You missed the cheaper deal that may not return soon

With the middle-class strata of India all set to hit the markets this Diwali, the government had a different plan for the richer counterparts under GST 2.0. The timeline between the announcement of new rates to their implementation was approximately three weeks. Was it a good time to stock up on a few “sin goods”?

The 56th Goods and Services Tax (GST) Council rolled out a fresh tax system for India, aiming to reshape household budgets and luxury spending alike. While essentials are set to become lighter on the pocket, luxury purchases are poised to pinch harder.

The Narendra Modi-led government has planned and executed the rate cut in order to boost domestic consumption in the economy, ahead of the upcoming festive season. This rate cut aims to empower the middle class, giving them a larger cash-in-hand budget for their festive spending.

However, the financial wing of the government has hinted on a ‘more income, more tax’ approach by imposing higher GST rates on luxury goods.

Under GST 2.0, luxury and so-called “sin goods” will now attract steeper taxes up to 40%

• Pan masala, gutkha, cigarettes, chewing tobacco, zarda, unmanufactured tobacco, and bidi
• Sugary and aerated drinks, sweetening matter or flavoured drinks
• Luxury cars and premium cars with more than 1200cc petrol engines and 1500 cc diesel engines
• Motorcycles (with engine capacity above 350cc)
• Other than sin goods, apparel, clothing accessories, and cotton quilts exceeding the value of Rs 2,500 now attract 18% GST
  

For motorbike riders and luxury car travellers, this can be “not-so-good” news as the GST rate has witnessed a steep rise. All the above-mentioned goods are now taxed under the 40% GST slab.

For avid shoppers and impulse buyers, the new GST has a price tag alert. Apparel which are priced above Rs 2,500 will now be taxed at 18%. With this move, most of the ethnic purchases this season are set to become more expensive.

Alongside this, coal, which previously attracted 5% GST along with a compensation cess of Rs 400 per tonne, will now be taxed at 18%, raising production costs for coal-based industries.

Here’s the full list of goods falling under the 40% GST slab:

Pan masala*

Unmanufactured tobacco; tobacco refuse [other than tobacco leaves]*

Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes*

Other manufactured tobacco and manufactured tobacco substitutes; “homogenised” or “reconstituted” tobacco; tobacco extracts and essences*

Products containing tobacco or reconstituted tobacco and intended for inhalation without combustion*

Products containing tobacco or nicotine substitutes and intended for inhalation without combustion*

All goods (including aerated waters), containing added sugar or other sweetening matter or flavoured

Other non-alcoholic beverages

Caffeinated Beverages

Carbonated beverages of fruit drink or carbonated beverages with fruit juice

Motor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 8702), including station wagons and racing cars

Motor vehicles with both a spark-ignition internal combustion reciprocating piston engine and an electric motor as motors for propulsion, of engine capacity exceeding 1200cc or of length exceeding 4000 mm

Motor vehicles with both compression-ignition internal combustion piston engine [diesel or semi diesel] and electric motor as motors for propulsion, of engine capacity exceeding 1500 cc or of length exceeding 4000 mm

Motorcycles of engine capacity exceeding 350 cc

Aircraft for personal use

Yachts and other vessels for pleasure or sports

Revolvers and pistols, other than those of heading 9303 or 9304

Smoking pipes (including pipe bowls) and cigar or cigarette holders, and parts thereof

Specified actionable claim as defined in section 2(102A) of the CGST Act, 2017 means the actionable claim involved in or by way of – betting; casinos; gambling; horse racing; lottery

*For items marked with an asterisk (*) - the new rates will be effective from a date to be notified based on discharging of the entire loan and interest liability on account of compensation cess.


Removal of cess
In the older tax regime, GST was accompanied by a complex tax ‘cess’ which was one of the major grievances of the India Inc. The 56th GST Council decided to retain the GST rates and the compensation levy on pan masala, gutkha, cigarettes and chewing tobacco products such as zarda, unmanufactured tobacco and bidi until the full repayment of the loans. Once that's done, the GST rate on these tobacco products will be raised to the new highest bracket of 40% but the additional levy of the compensation cess will be scrapped.

Once the additional cess is removed, the taxation system will become easier and quicker for companies. However, with the GST rates revised to 40% on sin goods, the prices of these goods might not have much impact.

“It used to be 40% only — 28% plus 12%. The government has again put it at 40%, so there’s no change in the soft drink market,” Varun Beverages chairman Ravi Jaipuria said in an exclusive conversation with ET Prime. But, the company is looking for opportunities in non-soft drink segments like water, juices and value-added dairy products that attract nearly 30% of its sales.

What's next with the new GST regime?
For Indian auto enthusiasts, GST has a lot to offer as major automakers, including Maruti Suzuki, Tata Motors, Hyundai Motor, M&M, Kia and Honda have announced a reduction in their prices to pass on the GST benefit to customers.

With the new rate cut, FMCG and renewable sectors are expected to see a demand boost, while luxury auto makers and hospitality chains may face a slowdown in big-ticket spending. For the common household, groceries and essentials should get cheaper, though appliances may cost slightly more.

Under the new GST regime, the government has granted the biggest relief for daily consumption goods, as the GST on edible oils, cereals, and pulses has been cut to 5%, giving households some breathing space. Renewable energy products such as solar panels and green energy equipment have also seen a drop to 8%, in line with the government’s sustainability push.

The Council has signalled that rates could be reviewed again in the coming months, depending on inflationary trends. For now, the government has urged consumers to take advantage of the lowered rates on essentials and brace for higher bills if planning luxury indulgences.

The new GST slabs bring a mixed bag, relief for daily needs, but no more bargains on luxuries. That deal, it seems, won’t return anytime soon.