GST Overhaul: Tax Bites on Everyday Items and Insurance

New GST overhaul has changed the way Indians pay for everyday items and services. Companies and households will gain from tax cuts declared during the 56th GST Council meeting on everything from insurance to soaps. The decision, hailed as “next-generation reforms”, simplifies the tax code and reduces taxes on necessities.

The 56th GST Council Meeting

The 56th GST Council meeting, held on September 3 and continuing on September 4 in New Delhi, marked a turning point. It followed Prime Minister Narendra Modi’s Independence Day address, when he promised sweeping “Next-Gen GST reforms” by Diwali.

At the end of the first-day meeting, Finance Minister Nirmala Sitharaman announced the reforms, emphasizing that they were intended to reduce household expenses, support domestic industries, and address long-standing problems with India’s indirect tax system.

What the GST Council Decided

The council agreed to merge the earlier four-tier structure into two slabs: 5% and 18%, while keeping a special 40% rate for luxury and “sin” items like high-end cars, cigarettes, and tobacco.

Finance Minister Nirmala Sitharaman said during her press briefing on the 56th GST Council meeting in New Delhi, “The government has ensured the middle class and farmers benefit, while also correcting long-standing issues in the tax structure.”

The new rates will be effective from September 22, just before the Indian festive season.

How Daily Essentials Get Cheaper

The most direct impact will be on household and kitchen essentials. The GST on soaps, shampoos, hair oils, and toothpaste has been reduced to 5%. Indian breads, paneer, and ultra-high temperature milk are now exempt from GST altogether.

Food items like noodles, chocolates, sauces, and cornflakes move down from 18% or 12% to just 5%. This should ease grocery bills for millions of families.

Relief for the Middle Class

Insurance has often been considered expensive in India. In a landmark step, all individual life and health insurance policies are now exempt from GST. Families purchasing term, endowment, or family floater health plans will no longer bear additional tax burdens.

The move is designed to expand insurance coverage, which currently lags behind many emerging economies.

Changes in the Automotive Sector

Automobile buyers will also notice relief:

• Small cars and motorcycles up to 350cc drop from 28% to 18%.
• Three-wheelers, buses, trucks, and ambulances follow the same path, from 28% to 18%.
• All auto components now receive the same 18%.

This reduction would be able to aid the “Make in India” objective by boosting manufacturing and demand.

Pay Attention to Medicines and Health

• 33 life-saving drugs now enjoy 0% GST.
• Three essential medications for rare diseases and cancer went from having a 5% tax to having none.
• Other essential medicines now fall to 5%.
• Medical devices like glucometers, bandages, reagents, and diagnostic kits reduced to 5%.

The government clarified why not all drugs were exempt. “If medicines are fully exempted, manufacturers lose input tax credit, which could push up prices,” the Finance Ministry explained.

Agriculture and Farmers’ Gains

Farmers and agriculture-based businesses will benefit from lower costs. GST on tractors, harvesters, and other agricultural equipment has been cut to 5%. Fertiliser inputs such as sulphuric acid, nitric acid, and ammonia also drop from 18% to 5%, correcting a long-standing inverted duty structure.

Boost for Labour-Intensive Industries

Handicrafts, marble blocks, granite, and intermediate leather goods will now attract only 5% GST. Millions of artisans and labourers are employed in these industries, and it is anticipated that the lower rate will boost exports and rural employment.
Impact on textiles

Piyush Goyal, the minister of commerce, emphasized the impact on clothing and textiles. He said, “The #NextGenGST reforms are a game-changer for the textiles sector! Lower manufacturing costs mean more affordable garments and materials for all citizens, boosting growth across the industry.”