Tax reforms (GST revamp + new Income-Tax Bill):

Key Features of Proposed GST Reform

1. New GST Structure

   • Two-tier GST: 5% and 18%.

   • 40% slab for sin goods (tobacco, luxury liquor, etc.).

   • Abolition of 12% and 28% slabs.

   • Removal of compensation cess.

2. Inclusion of Petroleum Products

   • Petrol & diesel under GST deferred due to energy price volatility.

   • May be considered in next round of reforms.

3. Rate Rationalisation

   • Cement: 28% → 18% (expected to cut real estate & infra costs).

   • Automobiles & auto parts: 28% → 18% (boost demand & reduce costs).

   • Luxury/ultra-premium cars may continue to face higher incidence.

4. Institutional Strengthening

   • Simplified input tax credit (ITC) system.

   • Stronger GST tribunals for dispute resolution.

Income-Tax Bill (Direct Tax Overhaul)

• Recently passed by Parliament; forms part of a complete revamp of direct + indirect tax system.

• Aimed at simplification, widening tax base, and reducing compliance burden.

Government’s Position

• PM Modi: Draft circulated to states; seeks rollout before Diwali 2025.

• Framed as “reform with good governance”, intended to ease life & business.

• Fiscal deficit target for FY26: 4.4% of GDP, despite expected revenue dip.

Impact Assessment

1. On Consumers

• Lower tax burden on essentials & big-ticket items like housing and vehicles.

• Cheaper cement → reduced housing & infrastructure costs.

• Cheaper auto parts → reduced maintenance costs.

• Lower duty burden likely to increase affordability.

2. On Businesses

• Reduced rates → potential demand boost in auto, housing, infra sectors.

• Simpler ITC regime → easier compliance for MSMEs & large firms.

• Anti-profiteering provisions relaxed; extent of consumer benefit depends on market pass-through.

3. On States & Revenues

• Short-term revenue loss (e.g., ₹33,000 crore from cement + auto rate cut).

• Long-term gain from higher consumption demand and tax buoyancy.

• States benefit politically by showcasing reduced tax burden on citizens.

4. On Overall Economy

• Housing push aligns with government’s affordable housing & infra expansion targets.

• Auto demand revival could support manufacturing & jobs.

• Rationalisation seen as pro-consumer, pro-growth, while maintaining fiscal prudence.