Friday proved to be a big day for India Inc. After a slew of tax concessions including reduction in corporate tax from 30 per cent to 22 per cent, the GST Council has lowered tax on a number of goods and services to spur demand.
The key sectors which would benefit from GST rate cuts are hotels, gems & jewellery, defence and automobiles.
Announcing the rate cuts following the GST Council meeting here, Finance Minister Nirmala Sitharaman said that hotels room with tariff of Rs 7,500 crore would now attract 18 per cent GST from 28 per cent earlier. The hotel rooms costing between Rs 1,000 and Rs 7,500 would attract 12 per cent GST. No tax would be levied on hotel rooms with rental upto Rs 1,000.
Among other rate changes, the Council has reduced rates for cups and plates made from leaves and hides to nil. The GST on caffeinated beverages has, however, been increased from 18 per cent to 28 per cent plus additional 12 per cent cess.
The Council has exempted specified defence items from GST to promote this key sector.
Among other major items, the Council has reduced compensation cess on passenger vehicles with seating capacity of 10-13 persons by 1-3 per cent, thus making them cheaper.
Railway wagons, coaches and rolling stocks would, however, now attract higher GST of 12 per cent from 5 per cent earlier.
The revised GST rates would become effective from October 1, 2019.
In a major boost to gems and jewellery sector, the Council recommended to reduce GST on cut and polished semi-precious items to 0.25 per cent from 3 per cent now.
The two back-to-back announcements are set to boost growth and investment.
With most engines of growth stuttering and GDP declining to six-year low of 5 per cent in the April-June quarter, pressure has been mounting on the government to revive the economy. Some external factors like US-China trade war has added to the woes.
In the wake of domestic and external headwinds, the Reserve Bank of India recently lowered its GDP forecast and pegged it at 6.9 per cent in 2019-20. Several rating agencies and research firms expect the growth to be in the range of 6.5-7 per cent.
The poor show in the first quarter of the current fiscal has prompted the Modi government to take measures to boost growth and lift business sentiment. Starting August 23, Finance Minister Sitharaman has announced four set of measures to put economy on fast track.
Historic trade session ends with 1,921 pts gain for Sensex
The Sensex closed Friday's session with an unprecedented 5.32 per cent advance as Finance Minister Nirmala Sitharaman made yet another big ticket announcement to kick start the economy.
The benchmark indices logged the biggest ever gains in the history of trading in India as the government slashed the effective corporate tax rate to about 25 per cent from 30 per cent.
Sensex advanced by a massive 1921.15 points to 38,014.62 while the broader Nifty jumped to 11,275.45 after gaining 570.65 points or 5.33 per cent.
The biggest beneficiaries among the 30 Sensex stocks were HeroMoto Corp, Maruti Suzuki, IndusInd Bank, Bajaj Finance, State Bank of India and Bajaj Finance, which gained in the range of 9 to 12 per cent.
The badly beaten down auto stocks gained the most. Nifty auto jumped over 9.90 per cent while the Nifty banks index gained over 8 per cent.
"The announcements made by the Finance Minister is very positive for the economy, corporates and stock market. The effective tax after surcharges and cess will come down from 33 per cent to 25.17 per cent," said Rusmik Oza of Kotak Securities.
