The common man is set to get a relief in the new Goods and  Services Tax (GST) rates finalized by the GST Council on Thursday.

Finance Minister Arun Jaitley, who heads the powerful GST Council, announced a four-slab tax structure of 5, 12, 18 and 28 per cent with lower tax for essential items and highest for luxury and de-merit goods like aerated drinks and tobacco.

The GST, targeted to be rolled out from April 2017, is a comprehensive indirect tax that will be levied on manufacture, sale and consumption of goods and services. It will subsume a host of central and state taxes like excise duty, service tax and value-added tax (VAT).

Under the new slab, food and other essential items will be taxed at zero rate to keep inflation under control, while luxury cars will attract the highest rate of 28 per cent. Along with luxury cars, aerated drinks and tobacco products like pan masala will also attract an additional cess.

Although the cess has not yet been quantified, the finance minister indicated the tax on luxury cars will be under 40 per cent. The FM also announced the rate for all passenger rates will be fixed at 28 per cent. With this, the prices of luxury cars as well as small cars are likely to come down marginally or may remain at current levels. At present, the luxury cars are taxed about 48-54 per cent and small cars are taxed at 30-32 per cent.

According to the finance minister, the highest slab will be applicable to the items currently taxed at 30-31 per cent.  “The tax collections from additional cess on some items and the cess from clean energy  would be used to create a revenue pool meant for compensating states for any loss of revenue during the first five years of implementation of GST. The cess would be lapsable after five years,” he said.

The decision was reached on the first day of the two-day GST Council meeting held here today.

Jaitley said about Rs.50,000 crore would be needed to compensate states for loss of revenue from the GST rollout in the first year.

Tax rate has been one of the most contentious issues. Parliament can now go ahead with the GST legislations in the winter session beginning November 16 and pave the way for rollout of the new indirect tax regime from April 1 next year.