The much-awaited Diwali gift promised by Prime Minister Narendra Modi from the ramparts of the Red Fort is finally here. And it has come ahead of the schedule. With the GST 2.0 reforms beginning today, tax on over 400 items will come down beginning today. 

A host of items, including household items and common use goods, four wheelers, two wheelers will become cheaper as the two rate GST structure comes into force today. GST reform package was announced on September 3 by finance minister Nirmala Sitharaman, with a simplified two-slab structure (5% and 18%) and an additional 40% tax slab for sin goods. GST on small cars and two wheelers less than 350 CC has been reduced to 18% from 28%.

GST on common use items, hair oil, toilet soap bars, shampoos, toothbrushes, toothpaste, bicycles, tableware, kitchenware, other household articles have come down to 5%, from either 12% or 18%. Nil tax will be applicable on Ultra-High Temperature (UHT) milk, prepackaged and labelled chena or paneer; all Indian breads (Chapati or roti, paratha, parotta, etc). Food items such as packaged namkeens, bhujia, sauces, pasta, instant noodles, chocolates, coffee, preserved meat, cornflakes, butter, ghee will now have GST of 5%, compared with 12% or 18% earlier.

All individual life insurance policies, whether term life, ULIP or endowment policies and reinsurance have been exempted. All individual health insurance policies (including family floater policies and policies for senior citizens), have been exempted. In a move that will come as a fillip to the construction and infrastructure sector, GST on cement has been lowered to 18% from the current 28% slab.

Tax reduction, and the accompanying reforms like ease of refunds and registrations, are set to provide a significant impetus to the private investments in the economy. The tax cut will come as a big bang for the buck for consumers, households, as mega tax cut across sector to boost consumption, and savings. “Faster refunds, and correction of inverted duty structure will address working capital blockage issues for MSMEs. Reduced rates on inputs to make businesses more competitive,” said a government source.

The finance ministry is of the view that significant fillip to tax base, and future collection is likely to be expected in the line of the buoyancy seen after 2017 as lower tax rate with better compliance bolsters collections. The GST reforms will also strengthen supply chains, promote local manufacturing, and boost employment and are strategically aligned with government schemes like Make in India, PM Gati Shakti, and Pradhan Mantri Awas Yojana.