Latest GST Revamp: Updated Tax Rates for Cars, Gold, Mobile Phones, EVs, and Cigarettes
The Goods and Services Tax (GST) Council, led by Union Finance Minister Nirmala Sitharaman, has unveiled a significant overhaul of India’s indirect tax system, marking the most extensive changes since the GST’s introduction in 2017. This reform introduces a simplified two-slab tax structure of 5% and 18%, along with a new 40% slab for luxury and sin goods. The new rates will take effect from September 22, coinciding with the start of Navratri. Revenue Secretary Arvind Shrivastava estimates that these changes will have a net fiscal impact of Rs 48,000 crore, aiming to stimulate consumption and enhance compliance.
Changes in Vehicle Taxation
The revised GST structure significantly benefits buyers of small cars, which will now be taxed at 18%, down from the previous rate of 29% (28% plus 1% cess). Small cars are defined as petrol, LPG, or CNG vehicles with an engine capacity of up to 1200 cc and a length of up to 4000 mm. Diesel cars with engine capacities up to 1500 cc and the same length also qualify for the reduced rate. In contrast, larger vehicles exceeding 1500 cc or longer than 4000 mm will fall under the new 40% GST slab, which also applies to utility vehicles like SUVs and MUVs that meet specific criteria. This consolidation simplifies the previous tax regime, which combined a 28% GST with a cess of 17-22%.
Motorcycles have also seen a rationalization in their GST rates. Models with engine capacities up to 350 cc will now incur an 18% tax, reduced from 28%. However, motorcycles exceeding 350 cc will be taxed at the new 40% rate, aligning them with luxury vehicles. This adjustment is expected to boost sales in the mass-market two-wheeler segment, particularly among middle-class consumers in both urban and rural areas.
Impact on Insurance and Luxury Goods
A notable change in the GST overhaul is the exemption of life and health insurance policies from GST, which previously attracted an 18% tax. This exemption is anticipated to make insurance more affordable and accessible, particularly in a country where insurance penetration remains low. The government aims to widen coverage and encourage more individuals to secure health and life insurance.
In contrast, the taxation of luxury goods has been adjusted, with products such as cigarettes, cigars, and chewing tobacco now falling under the 40% GST slab. However, the existing 28% GST plus cess regime will remain in place until compensation cess loans are fully repaid. This move reflects the government’s commitment to balancing public health concerns with the need for revenue, as tobacco taxation is a significant contributor to government finances.
Other Goods and Services Affected
Electric vehicles will continue to benefit from a lower GST rate of 5%, remaining unchanged under the new structure. However, the taxation of gold and silver jewelry remains at 3%, with an additional 5% GST on making charges. This stability in gold taxation is expected to maintain steady demand, especially during the festive season when purchases typically surge.
Mobile phones, despite industry requests for a reduced GST rate, will continue to be taxed at 18%. The India Cellular and Electronics Association (ICEA) had advocated for a 5% slab, arguing that mobile phones are essential digital tools rather than luxury items. The current tax structure remains unchanged, which may impact affordability and domestic demand, especially as local production and exports in the electronics sector continue to grow.
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