In a major tax reform move, the Centre has proposed sweeping changes to the Goods and Services Tax (GST) framework, aiming to significantly ease the burden on consumers and simplify the indirect tax system.
Announced by PM Modi during his Independence Day address, the reform is being positioned as a “Diwali gift” to the common man. The finance ministry later confirmed that a proposal has been submitted to the Group of Ministers (GoM) recommending a shift towards a simplified two-tier GST structure.
Key Changes Proposed
12% slab to 5%: Nearly 99% of goods currently taxed at 12% could soon be moved into the 5% bracket.
28% slab to 18%: Around 90% of items in the 28% slab, excluding luxury and “sin” goods, may be shifted to 18%.
Two main rates: The revised GST is expected to primarily feature two slabs — 5% and 18%.
Special 40% rate: A higher rate will apply to a small set of luxury and demerit goods, such as tobacco, though the effective tax burden on these items will remain unchanged.
Currently, GST has four tiers — 5%, 12%, 18%, and 28%. Essential food items are either exempt or taxed at the lowest rate, while luxury products attract the highest.
Impact on Consumers & Industry
If implemented, the overhaul will make several daily-use and aspirational items cheaper, boosting consumption and reducing disputes over classification. The finance ministry has also proposed pre-filled GST returns, faster refunds, and technology-driven registration for small businesses, aiming to improve ease of doing business.
Officials believe the rationalization will help offset any potential revenue loss by stimulating demand, while also creating policy stability for industry planning.
What’s Next
The GST Council, chaired by Finance Minister Nirmala Sitharaman, is expected to deliberate on the GoM’s recommendations in September. With consensus from states, the reforms could be rolled out before Diwali this year.
As the compensation cess regime ends in March 2026, the government is using this transition to redesign GST for long-term sustainability. Bihar Deputy CM Samrat Chaudhary is leading the GoM overseeing the rationalization process.
If approved, this will mark the most significant GST reform since its rollout in 2017.