GST Rate Rejig: A Boost to Consumer Savings
The GST Council has restructured tax rates for household essentials, potentially reducing retail inflation by 65-75 basis points. With new rates effective from September 22, most goods will see reduced GST rates. The changes aim to moderate CPI inflation through decreased rates on essential items and services.
- Country:
- India
The recent GST rate overhaul aims to reduce tax rates on essential household items and services, a move that SBI Research predicts could moderate retail inflation by 65-75 basis points in the coming fiscal year.
On Wednesday, during its 56th meeting, the GST Council restructured the existing four-tier tax system into a more citizen-friendly 'Simple Tax' with two rates: a standard rate of 18% and a merit rate of 5%. Some goods will see a special de-merit rate of 40%.
The new rates take effect on September 22, with exceptions for tobacco and related products, whose rates will be announced later. Out of 453 goods, 413 will experience lower GST rates. Essential items, about 295 of them, will see rates drop from 12% to 5% or NIL. This change could reduce CPI inflation by 25-30 basis points in FY26, assuming a 60% pass-through effect on food items. Additionally, the rationalization of service rates could cut CPI inflation by another 40-45 basis points. Overall, this adjustment is expected to bring the effective weighted average GST rate down from 14.4% to approximately 9.5%.
(With inputs from agencies.)
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- consumer
- savings
- household
- essentials
- retail
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