New Delhi : In a major move aimed at simplifying India’s Goods and Services Tax (GST) system, the Centre has proposed cutting down the number of tax slabs, retaining only the 5% and 18% rates. According to official sources, almost all goods in the 12% and 28% categories will be shifted to lower brackets, marking the biggest GST restructuring since its launch in 2017.
Key Changes Proposed
- 12% and 28% slabs to be removed
- 99% of goods in the 12% category will shift to 5%
- 90% of goods in the 28% category will move to 18%
- No additional cess over GST rates
- Special rates: A concessional slab below 1% for precious metals like gold and silver, and a “sin tax” of 40% for 5–7 items such as tobacco and gutka
Prime Minister Narendra Modi announced these “next-generation GST reforms” as a “Deepavali gift” during his Independence Day address at the Red Fort. He said the changes would significantly reduce the tax burden on ordinary citizens.
Balancing Relief with Revenue
Officials acknowledged that the shift will cause a short-term dip in tax collections. However, they expect higher consumption, reduced evasion, and a wider tax base to offset losses by the end of the financial year.
“Revenue will take a hit initially, but not enough to worsen the fiscal deficit,” a senior official noted.
Currently, revenue contributions from GST slabs stand as follows:
- 28% slab: 11% of GST revenue
- 12% slab: 5%
- 5% slab: 7%
- 18% slab: 67% (majority share)
Role of States
The Finance Ministry confirmed that the proposal has been sent to the Group of Ministers (GoM) set up by the GST Council to study rate rationalisation. The GST Council is expected to take up the matter in its September–October meeting, with the government aiming to roll out most reforms within this financial year.
Since GST rate changes require consensus, the final decision now lies with the States. “The Centre can only put forward its proposal. It’s up to the States to accept or reject it,” a source explained.
Impact on Consumers
The government has also suggested lowering taxes on “aspirational goods” such as air conditioners and other white goods. Many daily-use items like toothpaste, soap, and shampoo—currently taxed at 18%—may also see rate cuts.
Officials pointed out that India’s average GST rate, earlier estimated by the RBI at 11.6%, will now fall substantially. Moreover, items within the same category—like different types of namkeen (savouries)—will be taxed uniformly, reducing confusion.
Boost to Ease of Living
Beyond rate cuts, the reforms aim to improve compliance and ease of doing business:
- Faster, tech-driven GST registration
- Pre-filled returns to cut manual errors
- Quicker and automated refund processing
- Fixing inverted duty structures that have locked up companies’ working capital
Officials said correcting the inverted duty structure could prove especially impactful, freeing up funds for businesses to expand and invest.