India's most significant indirect tax reform since the introduction of GST eight years ago went live on Monday, streamlining the country's four-tier tax structure into primarily two slabs and potentially delivering massive savings to consumers during the crucial festive season.
The GST 2.0 reform, approved by the 56th GST Council meeting in early September, reduces the existing 5 per cent, 12 per cent, 18 per cent, and 28 per cent tax brackets to just 5 per cent for essentials and 18 per cent for standard goods and services. A special 40 per cent rate applies to luxury and "sin goods", including tobacco, high-end vehicles, and gambling.
Major companies have already passed tax benefits to consumers ahead of the September 22 implementation.
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Dairy giant Amul reduced prices across more than 700 product lines, cutting butter prices by Rs 4 per 100g pack and ghee by Rs 40 per litre.
Leading appliance manufacturers, including Voltas, Daikin, and Godrej, slashed air conditioner prices by up to Rs 4,500 and dishwasher costs by Rs 8,000.
The automotive sector sees significant relief with small cars and two-wheelers (up to 350cc) moving from 28 per cent to 18 per cent GST.
Consumer electronics, including televisions, refrigerators, washing machines, and air conditioners, also benefit from the same rate reduction.
Healthcare and food get major relief
Essential items received the most substantial cuts. Ultra-High Temperature (UHT) milk, paneer, khakra, and Indian breads moved to zero GST from 5 per cent. Thirty-three life-saving medicines became completely tax-free, while other medicines dropped from 12 per cent to 5 per cent. Health and life insurance premiums are now entirely GST-exempt.
Modi's 'savings festival' promise
Prime Minister Modi, addressing the nation on Sunday, described the reform as launching a "GST Bachat Utsav" (savings festival) coinciding with Navratri. He claimed the combined impact of GST reforms and earlier income tax relief would save Indian families Rs 2.5 lakh crore annually.
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"The poor, middle-class people, neo-middle class, youth, farmers, women, shopkeepers, businessmen, entrepreneurs of our country, everyone will benefit from this savings festival," Modi stated, emphasising the timing with the festive season.
The reform's success hinges on whether businesses actually pass tax benefits to consumers. Past GST rate cuts have shown mixed results in price transmission, making the real-world impact uncertain despite theoretical savings.
Home Minister Amit Shah called the new structure a "trust-based tax system" that would increase both production and consumption, marking what he termed a "new era of mutual trust" between citizens and government.
The GST 2.0 rollout represents the Modi government's attempt to stimulate consumption to combat the sluggish private demand in recent times. Moreover, it is also a critical test for using indirect tax policy as an economic stimulus tool during India's peak shopping 'festive' season.