GST Council meet begins to deliver on PM Modi's Diwali gift promise: What's coming for auto, insurance, personal care and electronic sectors?

The Finance Minister Nirmala Sitharaman-chaired GST Council meeting has begun in New Delhi. The meeting, which will continue for two days on Wednesday and Thursday, will discuss the ambitious overhaul of the Goods and Services Tax to lower tax rates on daily use items ranging from dairy products to automobiles.Two slabs structure The Council, composed of ministers from all states, will discuss the Centre's 'next-gen' GST reform proposal of having just two tax rates of 5 and 18 per cent by moving products from the current 12 and 28 per cent slab to lower rates. Additionally, a special 40 per cent tax has been proposed to be levied on select sin goods.As per the Centre's proposal, 99 per cent of the items in the current 12 per cent bracket will be shifted to the proposed 5 per cent slab. Besides, 90 per cent of the items in the 28 per cent bracket would be shifted to 18 per cent.The Fitment Panel has also cleared the two-slab structure for GST. Reduction of tax and resultant fall in prices has been welcomed, but opposition ruled states have demanded compensation for any loss of the revenue that may occur because of the rejig."Complementing this, the planned roll out of the next generation GST reforms with the planned Council meeting tomorrow and day after, will set an economy absolutely open and transparent in the coming months and with further reduction in compliance burden, making it easier for small businesses to thrive" Sitharaman said ahead of the Council meeting.Currently, a four-tier structure including tax slabs of 5, 12, 18 and 28 per cent have been in place from July 1, 2017, when the Centre and states agreed to subsume most of their taxes like excise duty and VAT into one uniform tax.Further, a compensation cess ranging from1 to 290 per cent is levied on luxury and demerit goods to create a revenue pool for compensating states for the loss of revenue occurring from the exercise.However, the compensation mechanism was for initial 5 years ending June 2022.In his Independence speech on August 15, Prime Minister Narendra Modi unveiled the plan for GST reforms. The Centre soon shared a blueprint of the planned reform with a Group of Ministers (GoM) from different states for initial vetting.The GoM has consented to Centre's proposal of doing away with the 12 and 28 per cent slabs, and reducing tax rates to benefit the common man. The recommendations will be discussed in the meeting on September 3 and 4.While broadly agreeing with the slab changes, the GoM has favoured charging electric vehicles priced up to Rs 40 lakh with an 18 per cent GST, sources aware of the matter said. The Centre, however, is keen to push EV adoption and favours a 5 per cent rate and the same stance will be pushed in the Council meeting, they said.What is likely to changeMost daily use items like ghee, nuts, drinking water (20 litre), non-aerated drinks, namkeen, certain footwear and apparels, medicines and medical devices are likely to be placed in 5 per cent slab from the current 12 percent.Additionally, commonly used items ranging from pencils, bicycles, umbrellas to hair pins may also move to 5 per cent slab.According to reports, insurance premiums will be taxed at 5 per cent or even nil (zero per cent), a massive shift from the current 18 per cent.Electronics like certain categories of TV, washing machine and refrigerator are, which are currently in the 28 per cent slab are likely to be taxed at 18 per cent.Furthermore, automobiles, which are taxed at 28 per cent, plus a compensation cess, may see a differential rate with entry level small cars being charged 18 per cent rate, while SUVs and luxury cars might be taxed in the special 40 per cent bracket.The special 40 per cent rate will also be for other demerit goods like tobacco, pan masala and cigarettes. There could also be an additional tax on top of this rate for this category.