The new slab structure blends economic relief with strategic messaging: trimming household bills while protecting key sectors before elections
The GST 2.0 overhaul isn’t just a tax reform; it’s a political statement. From the middle class to farmers, the restructuring of India’s indirect tax regime appears carefully calibrated to please key voter segments ahead of the Bihar elections. The four-tier structure of 5, 12, 18, and 28 per cent is being replaced by just two core slabs—5 and 18 per cent—while a new 40 per cent rate has been introduced for luxury and ‘sin goods’.
The slab changes seem to have been designed with precision, targeting constituencies that matter both economically and electorally. Here’s how each group stands to benefit.
Middle Class: Aspirational Gains, Political Stakes
Comprising nearly 31 per cent of India’s population, the middle class is both an economic driver and a critical electoral bloc. The BJP has already tried to woo this segment with tax cuts in the Union Budget, and GST 2.0 takes it further.
The government has slashed GST on a host of goods associated with middle-class consumption and aspirations— small cars, LED TVs, air conditioners, cinema tickets, chocolates, pencils, geometry boxes—have seen tax rates slashed to 18 per cent. Daily-use items like soaps, shampoos, hair oil, toothpaste, toothbrushes, talcum powder, candles, shaving kits, safety matches, and even stationery and toys are now taxed at just 5 per cent, down from 12–18 per cent earlier.
Healthcare expenses, a major outlay for many households, have also been addressed. Life and health insurance premiums are now GST-exempt, while 33 life-saving drugs, including treatments for cancer and rare diseases, have been made entirely tax-free. Diagnostic kits, thermometers and most other medicines are down to 5 per cent.
With the Bihar elections around the corner, these changes are seen as a strategic move to retain middle-class goodwill in a state where their vote can swing the outcome.
Farmers and Dairy Sector: A Red Line in Tariff Talks
India’s agrarian economy has long made farmers a non-negotiable priority in policymaking. According to National Sample Survey Office (NSSO) data, the country is home to between 37 and 118 million farmers, and around 93 million agricultural households. The dairy sector alone involves 70 to 80 million farmers.
GST 2.0 acknowledges their importance. Tax rates have been cut on items vital to farm and rural livelihoods—farm equipment, ghee, butter, paneer, jams, sauces, soups, namkeens, and even dry fruits like almonds, cashews, and pistachios are now taxed at 5 per cent, significantly down from 12–18 per cent.
Crucially, both the agriculture and dairy sectors have been protected during trade negotiations with the US. India has refused to open these to foreign competition, choosing instead to safeguard domestic producers. This aligns with the broader political priority of keeping rural India economically secure.
Healthy India: Taxing the Bad Stuff
Prime Minister Narendra Modi has consistently promoted a healthy lifestyle, from popularising yoga internationally to urging citizens to cut down on oil and sugar consumption.
GST 2.0 reinforces this vision with a new 40 per cent ‘sin tax’ on products considered harmful to health. This includes tobacco, pan masala, zarda, gutkha, and aerated or caffeinated beverages with added sugar. The message is clear: the government wants to make unhealthy choices costlier while rewarding mindful consumption.
