Tax Cuts, Sales Boost: Everything You Need To Know About New GST Rates

Finance Minister Nirmala Sitharaman unveiled tax cuts for hundreds of consumer items, from soap to cars, in the biggest overhaul of the goods and services tax (GST), set to take effect from September 22.

Here are key highlights:

Major Changes

India will have two key tax rates of 5% and 18% from September 22, versus four now. A new tax slab of 40% will apply to high-end goods, but all additional levies above that are to be abolished, bringing down effective tax rates on mid-size and big cars.

Revenue Loss, Inflation Impact

The government estimates the cuts will cause revenue loss of 480 billion rupees ($5.5 billion), far lower than economists' estimate ranging from 1 trillion rupees to 1.8 trillion rupees.

Citi said India's inflation could ease as much as 1.1 percentage points if the cuts are fully passed through to consumers. India's retail inflation rate fell in July to its lowest in eight years.

Tax Cuts On Daily Items

A tax panel approved a lower GST of 5% on items of everyday use such as packaged food, medicines, toothpaste, fruit, milk products, talcum powder and shampoo, against 12% to 18% now.

The cut is expected to lift the sales of fast-moving consumer goods firms such as Hindustan Unilever, Nestle and Godrej Industries, while lowering costs for farmers.

It will abolish tax on individual life and health insurance products sold by companies such as LIC, SBI Life Insurance and ICICI Prudential Life Insurance.

Holiday Boost To Sales 

The government has cut taxes on items such as cars, TVs and even cement, which could boost sales during the festival season that typically runs from the last week of September until November. India's tax panel also cut GST on air conditioners, ambulances, dishwashers, three-wheelers and hybrid vehicles.

Carmakers such as Maruti and Toyota, and manufacturers of consumer appliances such as LG Electronics and Sony are set to benefit immediately when the new rates kick in.

The tax panel also lowered the effective tax for big cars to 40% from the current rate of as much as 50%, making cars from Mercedes-Benz, AUDI Aktiengesellschaft and BMW attractive. GST on EVs was kept at 5%, giving relief to carmakers such as Tata Motors and Mahindra & Mahindra after a panel recommended an increase.

The government lowered taxes on fertiliser and tractors to help lower costs for farmers, recently came into the spotlight as Prime Minister Narendra Modi vowed to protect them following a breakdown in India-US trade talks.

Main Losers

GST was raised to 18% from 12% on apparel and clothing accessories that cost more than 2,500 rupees, which could hurt global brands such as Marks and Spencer, Levi Strauss, and Zara.

The tax on coal went to 18% from 5%, but the effective tax rate on fizzy drinks made by PepsiCo and Coca-Cola was held at 40%.

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)