In a landmark move aimed at simplifying India’s indirect tax regime, the Group of Ministers (GoM) on GST rate rationalization has reached a consensus to overhaul the existing multi-tier structure.
At a key meeting on Thursday, the state finance ministers agreed to reduce the current four-rate system to a three-slab framework, marking a significant step toward what is being termed “GST 2.0.”
Under the proposed revamp, the 12% and 28% slabs will be scrapped, with most goods and services falling under 5% or 18% rates. A higher 40% levy will remain for a limited set of sin and luxury goods, such as tobacco products and high-end automobiles. The panel has also recommended that luxury cars be brought into the 40% bracket.
According to officials privy to the meeting, about 99% of items currently taxed at 12% will move to the 5% slab, providing substantial relief to households and small businesses. Likewise, nearly 90% of products from the 28% bracket will shift to the 18% category, significantly reducing costs on consumer durables.
Key everyday items such as medicines, processed food, clothing, footwear, and essential household goods are expected to benefit from the lower 5% rate. Large household appliances, televisions, and other durable goods will attract an 18% GST instead of 28%, which is anticipated to reduce prices for middle-class consumers.
The GoM’s decision comes after extensive consultations and detailed proposals reviewed by the finance ministry. The central government has projected that the new structure will simplify compliance, boost consumption, and ease the tax burden on farmers, households, and the middle class.
Experts suggest that this restructuring could give a fillip to economic growth by streamlining the tax regime and spurring demand. The proposal will now be placed before the GST Council for final approval.
If cleared, GST 2.0 will represent one of the most significant tax reforms since the introduction of GST in 2017, with a strong focus on making India’s tax system simpler and more equitable.
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