New GST slabs explained: What comes under nil, 5%, 18% and 40%

The Goods and Services Tax (GST) Council has brought a big change in the country’s tax system. In its 56th meeting, chaired by Finance Minister Nirmala Sitharaman on Wednesday, the Council decided to reduce the multiple GST slabs to just two – 5 per cent and 18 per cent. The 12 per cent and 28 per cent slabs have been removed.

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At the same time, the Council introduced a new 40 per cent slab for luxury and harmful products. In addition, essential services and educational items are fully exempted from GST.

Here is a simple explanation of what will fall under which slab.

Nil Tax (0%)

Some essential services and educational items have been fully exempted from GST. This means they will now cost less for families, students, and those who use health insurance.

Pencils, sharpeners, crayons, pastels, exercise books, notebooks, and erasers have all moved from the earlier 12 per cent tax to nil. Maps, charts, and globes that were taxed at 12 per cent will now have no GST.

Individual health and life insurance, which previously attracted 18 per cent GST, has also been exempted completely.

5 Per Cent Tax

A large number of daily-use goods and essential services will now be taxed at 5 per cent. This is where people will see the biggest savings in their monthly budgets. Personal care items such as hair oil, shampoo, toothpaste, soap bars, toothbrushes, and shaving cream have been brought down from 18 per cent to 5 per cent.

In the food and kitchen category, products like butter, ghee, cheese, dairy spreads, pre-packaged namkeens, bhujia, mixtures, and utensils have all shifted from 12 per cent to 5 per cent. Feeding bottles, baby napkins, and clinical diapers will now fall in the 5 per cent bracket instead of 12 per cent.

Healthcare items such as thermometers, medical-grade oxygen, diagnostic kits, glucometers, test strips, and corrective spectacles have been moved down to 5 per cent. This change will make medical care more affordable.

Farmers will get direct relief as agricultural equipment including drip irrigation systems, sprinklers, bio-pesticides, micronutrients, soil preparation machines, harvesting tools, tractors, and tractor tyres will all be taxed at 5 per cent instead of 12 or 18 per cent.

Small industries will also benefit since sewing machines and their parts will now come under the 5 per cent slab.

18 Per Cent Tax

This slab has been kept for vehicles and consumer durables, which earlier attracted the higher 28 per cent rate. Petrol and petrol-hybrid cars, LPG and CNG cars below the specified size, diesel cars under 1500 cc, motorcycles up to 350 cc, three-wheeled vehicles, and transport vehicles have all been shifted from 28 per cent to 18 per cent.

Electronics and appliances have also seen major cuts. Air conditioners, dishwashers, televisions larger than 32 inches, LED and LCD TVs, monitors, and projectors will now fall in the 18 per cent bracket instead of the earlier 28 per cent.

40 Per Cent Tax (Sin and Luxury Goods)

The Council has created a new 40 per cent tax slab for harmful and luxury goods. Products such as paan masala, tobacco, cigarettes, bidis, aerated water, and caffeinated drinks will attract the higher rate.

Luxury goods such as high-end motorcycles above 350 cc, yachts, and helicopters will also be taxed at 40 per cent.

The new GST structure will come into effect from September 22. For ordinary families, this means soaps, shampoos, toothpaste, butter, ghee, namkeens, and even children’s school supplies will cost less. Farmers will spend less on tractors and irrigation systems. And, healthcare costs will reduce with cheaper medical equipment and diagnostic kits.

At the same time, those who spend on luxury goods or consume harmful products will have to pay much more under the new 40 per cent slab.