Centre Proposes Two-Tier GST Structure to Rationalise Tax Rates
The central government has proposed a major overhaul of the Goods and Services Tax (GST) system, suggesting a shift from the current four-slab structure to a two-tier model. The proposal, submitted to the Group of Ministers on rate rationalisation, suggests rates of 5% and 18% for most goods and services, while eliminating the 12% and 28% slabs. A special 40% rate would apply to a few luxury or 'sin' goods, aiming to simplify the tax regime and potentially boost consumption.
Unpacked:
The government aims to simplify the tax structure, improve compliance, boost consumption, and provide relief to businesses and consumers, especially amid global economic challenges and recent tariff pressures. The reform also aligns with broader goals to modernize governance and accelerate India's economic growth trajectory.
Goods currently taxed at 12%—such as many household, health, and insurance products—will mostly move to 5%, making them cheaper. About 90% of goods taxed at 28%, like certain consumer durables, will shift to 18%. Only a few luxury or demerit goods will remain at a higher rate.
Essential goods and services, including most food, medicines, education-related products, and daily-use items, will continue to be taxed at 0% or 5%, so their affordability should be maintained or even improved under the new structure.
The proposal is being reviewed by a Group of Ministers, who will submit recommendations to the GST Council. The Council, which includes all state and UT finance ministers and is chaired by the Union Finance Minister, will make the final decision, likely before Diwali 2025.