The Goods and Services Tax Council on Wednesday cleared a new slab structure, revamping it into a primarily two-rate system from the current four-tiered one.

The new GST system will comprise two slabs of 5% and 18%, Union Finance Minister Nirmala Sitharaman announced after the 56th meeting of the council.

However, a 40% GST rate will be applicable to “sin goods” such as carbonated beverages and tobacco products, and luxury items such as large cars.

The new rates will take effect on September 22 for most items, the minister said. Tobacco and related products will move to the new structure at a date that will be specified later.

The new system will exempt GST on all individual life insurance policies, including term life, unit-linked insurance plan or endowment policies, and reinsurance, the finance ministry said. GST on all individual health insurance policies will also be exempted.

The new structure reduces the GST rate from 18% or 12% to 5% for several items of daily use such as toilet soap bars, shampoos, toothbrushes, toothpaste, hair oil, bicycles, tableware, kitchenware and other household articles.

Revenue Secretary Arvind Shrivastava told reporters that the net fiscal implication of the rate cuts, based on consumption patterns in 2023-’24, will be Rs 48,000 crore. He said that the ministry “would not call it a revenue loss because that doesn’t seem to be the correct terminology”.

Shrivastava added that the rationalisation of the GST rates will be “fiscally sustainable” for the Union government and the states.

“These reforms have been carried out with a focus on the common man,” Sitharaman said. “Every tax levied on the common man has gone through a rigorous looking into, and in most cases, the rates have come down. Labour-intensive industries have been given good support.”

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