New Delhi: From September 22, most of the things that rural Indians buy will either not have any GST or will attract only a 5 percent tax. A study by FICCI and Thought Arbitrage Research Institute says that more than 75 percent of rural spending will now fall into these two lowest tax brackets. For city dwellers, about 66 percent of what they buy will be taxed at 0 percent or 5 percent. This is a big improvement compared to the present GST system, where only about 56 percent of rural spending and 50 percent of urban spending is in the 0 percent or 5 percent brackets.
The study looked at what people in villages and cities spend on different goods and compared this with the current and new GST rates. It found that at present, 29 percent of items have no GST. These items make up 36 percent of rural spending and 32 percent of urban spending. Under the new GST rates, nearly 30 percent of items will still have no tax, covering 36.5 percent of rural and 32.9 percent of urban spending.
At present, about 15 percent of items have a 5 percent GST, accounting for 20 percent of rural spending and 18 percent of urban spending. From September 22, many more items will be in the 5 percent slab — over 40 percent of items — and these will make up 38.8 percent of rural and 33.3 percent of urban spending.
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The 12 percent GST slab will disappear entirely. The 18 percent slab will shrink, covering fewer items and a smaller share of people’s spending. High-tax items (28 percent and above) already form a tiny share of what households buy, and under the new system they will shrink further, to only 0.5 percent of items and 0.2 percent of spending.
In short, under “GST 2.0,” everyday goods — especially those important for rural households — will mostly be either tax-free or taxed at a low 5 percent rate.
