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Business Standard
15 hours ago
- Business
- Business Standard
GST rate rejig to give ₹1.98 trillion consumption boost: SBI report
The proposed GST reforms through a two-tier tax structure and lower tax rates on household goods will lead to an estimated average revenue loss of Rs 85,000 crore a year, but will boost consumption by Rs 1.98 lakh crore, SBI Research Report said on Tuesday. The Centre has proposed a 'next-gen GST' under which the Goods and Services Tax (GST) will be a two-rate structure of 5 and 18 per cent based of classification of items as 'merit' and 'standard'. Also, a 40 per cent tax will be levied on 5-7 select goods, including demerit goods like pan masala and tobacco. SBI Research Report estimated that the effective weighted average GST rate has come down from 14.4 per cent at the time of inception to 11.6 per cent in September 2019. Given the current rationalisation of rates, we believe that effective weighted average GST rate may come down to 9.5 per cent. However, the consumption boost, which totals for a 0.6 per cent increase in GDP, would not stoke inflation as taxes on mass consumption items are going to go down in the proposed GST regime. Overall, we believe CPI (consumer price index) inflation may be moderated in the range of 20 to 25 basis points. Since the GST rate of essential items (food, cloth, etc.) is expected to decline from 12 per cent to 5 per cent, the CPI inflation in this category may also come down by 10-15 basis points after considering a 60 per cent pass through effect on food items. Apart from this, the rationalisation of GST rates of services also leads to another 5-10 bps reduction in CPI inflation on other goods and service items, considering a 25 per cent pass through effect. "The GST 2.0 regime, while also involving an average revenue loss of Rs 85,000 crore, is estimated to have boosted consumption by Rs 1.98 lakh crore," SBI Research said. For the current fiscal, the loss to revenue is estimated at Rs 45,000 crore assuming the period of new tax rates as October-March. Taking together the benefits of income tax tax rate cuts announced in Budget for current fiscal, the combined impact of both measures amounts to an additional Rs 5.31 lakh crore of consumption expenditure in the economy. This translates into approximately 1.6 per cent of GDP, as per its estimates. The Centre's proposal will be discussed by a panel of state finance ministers on Wednesday and Thursday. Once approved, it would be placed before the GST Council in its meeting next month. The current GST structure (GST 1.0) consists of four main rate slabs: 5, 12, 18 and 28 per cent. These rates apply to most goods and services. In addition to the main slabs, there are three special rates: 3 per cent on gold, silver, diamond and jewellery, 1.5 per cent on cut and polished diamonds, and 0.25 per cent on rough diamonds. A GST Compensation cess is also levied on select goods such as tobacco products, aerated drinks and motor vehicles at varying rates. This cess is used to compensate states for any revenue loss resulting from the transition to the GST system. During the 79th Independence Day speech on August 15, Prime Minister Narendra Modi announced the next-generation reform in GST in the form of rate rationalisation (GST 2.0). He said that the GST reforms would be announced by Diwali.
Time of India
17 hours ago
- Business
- Time of India
GST rate rejig to give Rs 1.98 lakh cr consumption boost, yearly revenue loss seen at Rs 85,000 cr: Report
The proposed GST reforms through a two-tier tax structure and lower tax rates on household goods will lead to an estimated average revenue loss of Rs 85,000 crore a year, but will boost consumption by Rs 1.98 lakh crore, SBI Research Report said on Tuesday. The Centre has proposed a ' next-gen GST ' under which the Goods and Services Tax (GST) will be a two-rate structure of 5 and 18 per cent based of classification of items as 'merit' and 'standard'. Also, a 40 per cent tax will be levied on 5-7 select goods, including demerit goods like pan masala and tobacco. SBI Research Report estimated that the effective weighted average GST rate has come down from 14.4 per cent at the time of inception to 11.6 per cent in September 2019. Given the current rationalisation of rates, we believe that effective weighted average GST rate may come down to 9.5 per cent. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Empty Alaska Cruises Departing From Ontario That Seniors Can Book For Dirt Cheap FavoriteSearches | Search Ads Learn More Undo However, the consumption boost , which totals for a 0.6 per cent increase in GDP, would not stoke inflation as taxes on mass consumption items are going to go down in the proposed GST regime. Overall, we believe CPI (consumer price index) inflation may be moderated in the range of 20 to 25 basis points. Live Events Since the GST rate of essential items (food, cloth, etc.) is expected to decline from 12 per cent to 5 per cent, the CPI inflation in this category may also come down by 10-15 basis points after considering a 60 per cent pass through effect on food items. Apart from this, the rationalisation of GST rates of services also leads to another 5-10 bps reduction in CPI inflation on other goods and service items, considering a 25 per cent pass through effect. "The GST 2.0 regime, while also involving an average revenue loss of Rs 85,000 crore, is estimated to have boosted consumption by Rs 1.98 lakh crore," SBI Research said. For the current fiscal, the loss to revenue is estimated at Rs 45,000 crore assuming the period of new tax rates as October-March. Taking together the benefits of income tax tax rate cuts announced in Budget for current fiscal, the combined impact of both measures amounts to an additional Rs 5.31 lakh crore of consumption expenditure in the economy. This translates into approximately 1.6 per cent of GDP, as per its estimates. The Centre's proposal will be discussed by a panel of state finance ministers on Wednesday and Thursday. Once approved, it would be placed before the GST Council in its meeting next month. The current GST structure (GST 1.0) consists of four main rate slabs: 5, 12, 18 and 28 per cent. These rates apply to most goods and services. In addition to the main slabs, there are three special rates: 3 per cent on gold, silver, diamond and jewellery, 1.5 per cent on cut and polished diamonds, and 0.25 per cent on rough diamonds. A GST Compensation cess is also levied on select goods such as tobacco products, aerated drinks and motor vehicles at varying rates. This cess is used to compensate states for any revenue loss resulting from the transition to the GST system. During the 79th Independence Day speech on August 15, Prime Minister Narendra Modi announced the next-generation reform in GST in the form of rate rationalisation (GST 2.0). He said that the GST reforms would be announced by Diwali.
Time of India
06-06-2025
- Business
- Time of India
Big savings for home loan borrowers as EMIs to fall significantly after RBI cuts repo rate by 50 bps
Why RBI cut repo rate for the third time Live Events Home loan borrowers: What should be your action plan now? The Reserve Bank of India (RBI) is continuing the trend of delivering good news to home loan borrowers, especially in 2025. The RBI has decided to cut the repo rate and other policy rates by 50 basis points (bps). The latest cut in the repo rate means that interest rate on home loans will come down which means that EMIs or tenure of home loan will also come down. It is worth noting that the RBI has reduced the repo rate by a total of 50 basis points in February and April 2025 and with the current cut of 50 bps, the repo rate has seen a fall of overall 100 basis points in just the first half of the year reasons have prompted the RBI to consider a third rate cut . According to the Bajaj Broking report, "Headline CPI inflation remains consistently below the RBI's medium-term target of 4%."According to the government's data, the CPI Inflation in March 2025 was 3.34%. This further decreased to 3.16% in April to the SBI Research Report, "CPI Inflation may come down to 2.9% in Q1 FY26 as food inflation is expected to be within the target in June quarter. Above normal monsoon prediction by IMD, strong arrival of crops and decline in crude oil prices revising down our CPI estimate to 3.5% in FY 26 with downward bias."Another reason for the RBI's repo rate cut is the expectation of muted credit growth in FY26. As per the SBI research report, the commercial banks' credit growth slowed to 9.8% as on May 16, 2025, compared to 19.5% in the last year. During April and May, credit declined by Rs 15,676 crore, while deposits grew by Rs 3.06 lakh crore. A decent credit growth is required for economy to maintain its growth and a lower interest rate helps in boosting the credit economy is also not growing at the rate to match its true potential. "GDP growth appears to be softening, worsened by external shocks such as trade disruptions from recent U.S. policy moves," said Bajaj Broking in its report. With inflation being firmly in grip, focus of the central bank shifts towards economic growth and a lower rate regime helps in boosting the latest repo rate cut, home loan EMIs are expected to decrease further. Following the 50-bps repo rate cut by the RBI in February and April 2025, many banks have recently reduced their repo-linked EBLRs by a similar a majority of floating rate interest rate of home loans taken from banks is linked to an External Benchmark Lending Rate which is repo rate, then with the latest repo rate cut, your home loan interest rate will come down further in the coming the lender decides to go for reduction of interest rate, it will give you the option to either reduce your EMI by keeping same home loan tenure or keep the EMI unchanged and get reduced home loan tenure. According to experts, reducing your home loan tenure offers more benefits in the long term.35.9% of loans are linked to MCLR as per the SBI research report. MCLR has a longer reset period than EBLR. In a falling interest rate scenario, it is beneficial to have an interest rate regime which is faster in passing the benefit of interest rate reduction. If your home loan is still linked to the MCLR or any other loan regime, then you should switch to the EBLR-based regime to get quicker benefit of interest rate reduction and save on interest SBI research report anticipates that the RBI will cut the repo rate by 100 basis points in FY 2025-26. The central bank has already reduced the repo rate by 25 basis points in April 2025. With current cut of 50 bps, there is still a scope of 25 bps reduction in coming months.
