India’s upcoming Goods and Services Tax (GST) 2.0, set to launch on September 22, is poised to significantly ease financial burdens for a vast majority of Indian households. A new analysis from the Federation of Indian Chambers of Commerce & Industry (FICCI) reveals that over 75% of typical rural expenditures and 66% of urban household spending will fall into the ‘nil’ or 5% GST rate categories.
This marks a substantial improvement from the current GST structure, where only about 56% of rural and 50% of urban monthly household expenditures are currently covered by these lower tax brackets. The comprehensive report, compiled by the Thought Arbitrage Research Institute (TARI) for FICCI’s CASCADE committee, highlights a pivotal shift towards more affordable daily living.
The study meticulously cross-referenced item-wise GST rates with government data on monthly per capita spending in both rural and urban areas. The findings indicate the following significant changes in expenditure impact:
- Nil GST Rate: Currently, 29.1% of items are exempt from GST, accounting for 36% of rural and 32.3% of urban household spending. Under GST 2.0, the number of nil-rated items will slightly increase to 29.9%, covering 36.5% of rural and 32.9% of urban monthly expenditure.
- 5% GST Rate: A significant expansion is expected here. While currently 14.7% of items are taxed at 5% (representing 20.3% of rural and 18.2% of urban spending), this will jump to 40.5% of all items under GST 2.0. This expanded 5% slab will then encompass a larger share of household budgets: 38.8% for rural and 33.3% for urban residents.
- Disappearing 12% Slab: Notably, the 12% GST slab, which currently applies to 21.5% of items (affecting 14.4% of rural and 10.8% of urban spending), will be completely removed on September 22.
- Reduced 18% Slab: The 18% slab, currently covering 26.6% of items (and 15.4% of rural, 16.9% of urban expenditure), will shrink to include 23.1% of items under GST 2.0, impacting 12.3% of rural and 14.1% of urban monthly spending.
- Higher Slabs (28% and above): Items in the highest tax brackets (currently 28% and including a new 40% slab under GST 2.0) will see a drastic reduction. From 2.2% of items (affecting 1.7% of rural and 2.3% of urban expenditure), this category will now apply to a mere 0.5% of items, accounting for only 0.2% of both rural and urban monthly spending.
Overall, these reforms indicate a concerted effort to make essential goods and services more affordable for the majority of Indian consumers, particularly those in rural areas, by shifting a larger portion of their spending into the lowest or exempt tax categories, thus fostering greater economic inclusivity and relief.