Finance Minister Nirmala Sitharaman has recently stated that the reduction of Goods and Services Tax (GST) rates is expected to significantly boost India's economy. The government's primary focus is now on ensuring that the GST rate cuts on various goods and services, effective from September 22nd, are passed on to consumers.

The GST Council has approved a streamlined tax structure, introducing just two main slabs of 5% and 18%, a significant shift from the previous four-tier system that included 12% and 28% rates. A higher rate of 40% will be applied to luxury and sin goods. This restructuring aims to simplify the tax regime, reduce compliance hurdles, and stimulate consumer demand.

FM Sitharaman has emphasized that Members of Parliament (MPs) are taking responsibility for monitoring the rate reduction on the ground to ensure the benefits reach the common person. The government is engaging with various stakeholders and industry leaders who are reportedly on board with lowering prices to reflect the GST rate cuts.

The Finance Minister addressed concerns about companies potentially profiting from the GST rate reductions, assuring that the benefits would be transferred to the people. Although there isn't an explicit anti-profiteering mechanism, Sitharaman trusts that industry will pass on the tax cut benefits to consumers, with strict implementation and monitoring on the ground.

The GST Council can only address pending cases and those directed by the courts, and there have been instances of companies attempting to unduly profit from GST rate rationalizations in the past. Section 171 of the CGST Act, 2017, mandates that any reduction in the tax rate on goods or services, or the benefit of input tax credit, must be passed on to the recipient through a commensurate reduction in prices.

The new GST regime is expected to make many items cheaper, ranging from small cars and electronics to milk and other everyday consumer goods. Trade bodies and associations across various sectors like pharma, FMCG, manufacturing, and exports have welcomed the government's move. Industry experts believe that the revised rates will improve consumer demand, support exports and strengthen local markets.

Umesh Revankar, Executive Vice Chairman of Shriram Finance, noted that the GST 2.0 reform marks a turning point for the economy. While lower prices offer an immediate benefit, the real impact lies in the optimism and economic activity it is likely to generate across India. It is anticipated that many consumers who had postponed purchases, particularly of new vehicles, will now proceed, boosting demand for auto financing.

FM Sitharaman has stated that Prime Minister Narendra Modi had initiated discussions eight months prior, exploring ways to revamp the GST framework. PM Modi emphasized the need to simplify the system and ease the burden on the middle class. GST 2.0 has been designed to minimize disputes and ensure clarity for businesses and states.

According to FM Sitharaman, 99% of all goods and services touched by GST are now in the 0%, 5%, or 18% tax brackets. The remaining 1% accounts for demerit or sin goods. The FM believes this will lead to higher investments as well as fire up investments as consumption goes up creating potential for capacities to grow.

In addition to the GST reforms, the government is also preparing a package to support export sectors affected by US tariffs. While not directly addressing tariff issues, the GST reform is expected to stimulate demand and provide relief to affected sectors.