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New GST Rates: Answers to 10 questions arising from the decision of 5 and 12 percent GST, which directly affect the common man

Posted on 4th Sep 2025 10:56 am by rohit kumar

The GST Council has made a historic reform in the rates of indirect taxes and has approved only two GST slabs instead of four. Finance ministers of all the states in the council unanimously approved only two rates of GST, 5 percent and 18 percent. There will be no tax on common food items like paneer, chhena, tetra pack milk, roti, chapati, parantha, khakra, medicines for rare diseases, and cancer. Personal health insurance and life insurance policies have also been exempted from taxes. There was a long-standing demand for this. At the same time, a special tax slab of 40 percent has been created for selected luxury items and harmful to life, like fast food, luxury cars consumed by the rich class, alcohol, and tobacco. Finance Minister Nirmala Sitharaman said that the new rates will come into effect from September 22. This decision will make more than 175 items cheaper. Currently, four rates of GST are applicable: 5, 12, 18, and 28 percent. After an and a half meeting of the Council on Wednesday, Sitharaman said that these reforms have been made keeping the common man in mind. Every tax imposed on the items of daily use of the common man was reviewed, and in most cases, the rates have been drastically reduced. Along with farmers and the agriculture sector, the health sector will also benefit from this. This simplification of rates is part of the next-generation GST reform initiative. Will registration be required for the threshold of products under the CGST Act-2017? No, there is no change in this. What will happen to ITC on purchases made before the change in GST rates? Will ITC be available at a lower rate? The CGST Act gives the registered person the right to input tax credit (ITC) on his supplies. He uses it in the course of business or for furtherance or intends to use it. What will be the impact of the IGST rate on the import of goods? IGST on imported goods will be levied as per the notified rates. It will not apply to cases of separate exemption. Why a 40 percent special rate? This applies only to select items. These include demerit goods and luxury items. These were subject to compensation cess in addition to GST, which has now been merged with GST. Why was the tax rate not reduced on chemical dyes, plastics, and rubberized yarn for the textile sector? The process of tax rationalization is to correct the reversals in the man-made value chain. This is in line with the fiber neutral policy. However, these have multiple uses. Reducing tax on these items would require an end-use-based mechanism, which is against the existing rules. What is the new rate on vehicles above 1500 cc or over 4000 mm in length? What is the tax rate on utility vehicles? All mid-size and large cars (more than 1,500 cc or over 4,000 mm in length) will be taxed at 40 per cent. Utility category vehicles, by whatever name called, such as sports utility vehicles (SUVs), multi utility vehicles (MUVs), multi-purpose vehicles or cross-over utility vehicles (XUVs), with an engine capacity of more than 1,500 cc, length of more than 4,000 mm and ground clearance of 170 mm or more, will be taxed at 40% without any cess. Why 40% tax on other non-alcoholic beverages? The basic principle of the rate rationalisation process is to have the same rate for similar goods, so that misclassification and disputes can be avoided. Why amendment only on certain types of Indian bread? GST is already not applicable to bread. On the other hand, there were different rates for pizza bread, roti, and parantha. All Indian breads, by whatever name called, are now exempted from GST. Which policies are covered under the tax exemption on life insurance? There is a discount on all individual life insurance policies, including term, ULIP, endowment plans, and reinsurance services. And in health insurance? All individual health insurance policies. These include family floater plans, senior citizen policies, and their reinsurance services. Why are paneer and others different? There is already zero tax on all paneer except pre-packaged and labelled paneer. This change is only for pre-packaged and labelled paneer. The aim of the change is to promote Indian paneer.

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