“New GST Overhaul to Simplify Taxes and Cut Disputes; Automobiles Likely to Get Relief”
New Delhi: Businesses may finally get relief from confusing
courtroom battles over GST rates on everyday products — like the famous
disputes over whether parathas or popcorn should be taxed differently. The
government’s plan to move to a simpler two-rate GST system aims to end such
bizarre disputes.
The revamp will also bring cheer to the automobile sector.
Small cars are likely to move from the current 28% tax slab to 18%, while
bigger cars may shift to a new 40% slab. But even for higher-end models, the
overall tax burden will fall once the extra compensation cess of 17–22% on
automobiles is phased out.
The GST Council’s Group of Ministers on tax rate
rationalisation, headed by Bihar Deputy Chief Minister Samrat Chaudhary, will
meet in New Delhi this Wednesday and Thursday to examine the Centre’s proposal.
Officials said the agenda is “exhaustive,” with a focus on streamlining the
entire GST framework.
Under the new structure, there will be two main rates: one
for essential items and another standard rate for everything else. All food
items — whether packaged or loose — will likely fall into the 5% category,
officials said. The guiding principle will be simple: if a product is
essential, it will either be exempt or taxed at 5%; non-essentials will fall
under the standard rate.
Currently, packaged food is taxed at 12%, while unpackaged
food is at 5% — a difference that has led to confusion for both businesses and
consumers. Attempts to clarify this under the existing system have only made
things more complicated.
GST Relief to Boost Spending and End Bizarre Tax Disputes
In the past, GST rules have often baffled both businesses
and consumers. Last year, the GST Council clarified that popcorn would be taxed
at 5% if sold loose, 12% if packaged and labelled, and 18% if caramelised —
sparking widespread criticism.
Similarly, in 2020, the Karnataka tax authority ruled that
packaged parathas — which require heating before eating — should be taxed at
18%, unlike rotis which attract 5% GST. Though this order was later annulled on
technical grounds, the actual rate question remained unresolved.
Even papads stirred controversy. Social media once claimed
that only round papads were tax-free while square ones were not. The CBIC later
clarified that all papads are exempt from GST, regardless of shape or name,
except when served in restaurants, where normal restaurant food tax applies.
A Fresh Start With GST Revamp
Officials say such confusing disputes will finally end with
the proposed GST restructuring. The new system, which reduces the current four
slabs (5%, 12%, 18%, 28%) into a simpler two-rate structure, will eliminate
much of the ambiguity.
“The proposed GST overhaul is a positive step. It will end
classification-related disputes and give a strong push to consumer demand at a
time when exports are facing global challenges,” said M. S. Mani, Partner,
Indirect Taxes at Deloitte India.
Why Businesses Are Hopeful
Experts point out that disputes arise because companies
naturally want their products placed in lower tax slabs, while tax officers
often push for higher ones. This tug-of-war has affected items like auto parts,
cosmetics vs. medicated products, and flavoured milk. With only two slabs, the
scope for such arguments will sharply reduce.
Karthik Mani, Partner – Indirect Tax at BDO India, added: “A
two-rate structure will reduce disputes significantly. While it may create some
cases of inverted tax structure, the government has already said correcting
this imbalance is part of the reform plan.”
Bottom line: The GST
revamp isn’t just about cheaper goods — it’s about ending years of confusion,
restoring business confidence, and giving a timely boost to consumer
spending.Relief to automobiles
Fewer GST Slabs to Ease Automobile Taxes
As part of the proposed GST revamp, high-end cars — which
currently face 28% GST plus an additional cess of 17–22% — will move to a
single 40% GST slab without cess. According to officials familiar with the
discussions, this will actually lower the overall tax burden on these vehicles.
This category includes:
Cars with 1200–1500 cc engines, up to 4 metres in length
(currently 17% cess)
Cars with 1200–1500 cc engines, above 4 metres (20% cess)
SUVs with 1500 cc+ engines, above 4 metres (22% cess)
At present, the total tax on these ranges from 45% to 50%.
Under the new system, it will be streamlined to 40% flat. Experts note that
while sales volumes in this segment aren’t very high, the clarity and lower
burden will benefit both buyers and manufacturers.
On the other hand, small cars are set to get even bigger
relief. Vehicles currently in the 28% slab but with a small cess of just 1–3% —
such as:
Petrol, CNG, and LPG cars with engines up to 1200 cc and
under 4 metres (1% cess)
Diesel cars up to 1500 cc and under 4 metres (3% cess)
These vehicles currently face a tax burden of 29–31%, but
will likely shift down to the 18% GST slab. Analysts say this will make small
cars significantly cheaper, giving a much-needed push to automobile sales,
which have only grown by 2.79% this fiscal year.
In short: Bigger
cars will get simplified taxes and slightly lower rates, while smaller cars
could see major relief, making them more affordable for middle-class buyers.
