Finance Minister Nirmala Sitharaman on Wednesday unveiled tax cuts for hundreds of consumer items, from soap to electronics.
India will now have two major slabs of 5 per cent and 18 per cent, as against the four that were previously in place. 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.
The new tax rates are will be applicable from September 22.
Revenue loss and impact on inflation
The government has estimated that the cuts will result in revenue loss of Rs 48,000 crore, which is lower than the estimates of economists of 1 lakh crore.
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 use items
The tax panel approved lower GST of 5 per cent on items of everyday use items like packaged food, medicines, toothpaste, fruit, milk products, talcum powder and shampoo. These items were earlier placed in the 12 per cent or 18 per cent slabs.
The cut is aimed at boosting consumption fast-moving consumer goods firms such as Hindustan Unilever, Nestle and Godrej Industries, while lowering costs for farmers.
Further, the new regime has also abolished tax on individual life and health insurance products sold by companies such as LIC, SBI Life Insurance and ICICI Prudential Life Insurance.
Festive season boost
The government has also cut tax rates on products like cars, TVs and even cement, which could result in higher sales during the festive season from September to November. India's tax panel also cut GST on air conditioners, ambulances, dishwashers, three-wheelers and hybrid vehicles.
Carmakers such as Maruti, Tata 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 effective tax of luxury and big cars has been set at 40 per cent from the current rate of as much as 50 per cent, making cars from Mercedes-Benz, AUDI and BMW attractive.
GST on EVs was kept at 5 per cent, giving relief to carmakers such as Tata Motors and Mahindra & Mahindra after a panel recommended an increase.
The government also lowered taxes on fertiliser and tractors to help lower costs for farmers.
Big losers
While majority of the sectors get a boost with the new system, GST was raised from 12 per cent to 18 per cent 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%, while the effective tax rate on fizzy drinks make by PepsiCo and Coca-Cola was held at 40%. Meanwhile, tobacco products, including cigarettes have also been placed in the 40 per cent category.
India will now have two major slabs of 5 per cent and 18 per cent, as against the four that were previously in place. 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.
The new tax rates are will be applicable from September 22.
Revenue loss and impact on inflation
The government has estimated that the cuts will result in revenue loss of Rs 48,000 crore, which is lower than the estimates of economists of 1 lakh crore.
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 use items
The tax panel approved lower GST of 5 per cent on items of everyday use items like packaged food, medicines, toothpaste, fruit, milk products, talcum powder and shampoo. These items were earlier placed in the 12 per cent or 18 per cent slabs.
The cut is aimed at boosting consumption fast-moving consumer goods firms such as Hindustan Unilever, Nestle and Godrej Industries, while lowering costs for farmers.
Further, the new regime has also abolished tax on individual life and health insurance products sold by companies such as LIC, SBI Life Insurance and ICICI Prudential Life Insurance.
Festive season boost
The government has also cut tax rates on products like cars, TVs and even cement, which could result in higher sales during the festive season from September to November. India's tax panel also cut GST on air conditioners, ambulances, dishwashers, three-wheelers and hybrid vehicles.
Carmakers such as Maruti, Tata 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 effective tax of luxury and big cars has been set at 40 per cent from the current rate of as much as 50 per cent, making cars from Mercedes-Benz, AUDI and BMW attractive.
GST on EVs was kept at 5 per cent, giving relief to carmakers such as Tata Motors and Mahindra & Mahindra after a panel recommended an increase.
The government also lowered taxes on fertiliser and tractors to help lower costs for farmers.
Big losers
While majority of the sectors get a boost with the new system, GST was raised from 12 per cent to 18 per cent 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%, while the effective tax rate on fizzy drinks make by PepsiCo and Coca-Cola was held at 40%. Meanwhile, tobacco products, including cigarettes have also been placed in the 40 per cent category.
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