The Goods and Services Tax (GST) Council is set to convene its 56th meeting in New Delhi on September 3rd and 4th, where one of the key agenda items will be the Centre’s push for a simplified two-rate GST structure. The meeting will also take up several recommendations put forward by different Groups of Ministers (GoMs) formed to study reforms in the indirect tax system.
The Centre’s proposal for overhauling GST gained momentum after Prime Minister Narendra Modi, in his Independence Day address, referred to upcoming “next-generation GST reforms” as a potential festive season gift for citizens. Following his announcement, the Ministry of Finance formally shared the two-rate system proposal with the GoM on Rate Rationalisation, led by Bihar’s Deputy Chief Minister, Samrat Chaudhary. The GoM has since reviewed the draft and forwarded its observations to the Council for consideration.
With states pressing for safeguards and the Centre pushing for reform, the upcoming session promises to be a crucial balancing act. Whether the Council can move closer to a consensus on reshaping GST into a streamlined two-rate model remains to be seen.
What’s on the table?
The Centre has suggested streamlining the complex GST framework into just two standard slabs—a lower 5% bracket and a higher 18% bracket. If adopted, this would effectively:
- Phase out the 12% and 28% slabs that currently exist.
- Shift nearly 99% of goods taxed at 12% down to 5%, making several essential and mass-consumption items cheaper.
- Move around 90% of products and services in the 28% bracket into the 18% category, significantly reducing the tax burden on sectors like white goods, automobiles, and lifestyle products.
- Continue with a sub-1% concessional rate for a limited set of items such as diamonds and precious metals.
- Eliminate additional cesses, ensuring no extra levy over and above GST rates.
Likely GST Rate Changes (Proposed 2025 Reforms)
|
Product / Category |
Current GST Rate |
Expected New Rate* |
|
Items in 12% slab |
12% |
5% or 18% |
|
Health & Life Insurance |
18% |
Lower rate (likely 5% or nil) |
|
Electronics & White Goods (ACs, TVs, refrigerators, washing machines, cement) |
28% |
18% |
|
FMCG sachets (₹10 or less) |
18% |
5% |
|
Small cars (Petrol <1200cc, Diesel <1500cc, length <4m) |
28% |
18% |
|
Essential items (toothpaste, umbrellas, pressure cookers, sewing machines, small washing machines, bicycles) |
12% / 18% |
5% |
|
Fertilisers |
12% |
5% |
|
Textiles |
12% |
5% |
|
Renewable energy equipment |
12% |
5% |
|
Handicrafts |
12% / 18% |
5% |
|
Agriculture-related inputs |
12% |
5% |
*All changes are proposed and tentative, pending final GST Council approval.
With these changes, GST will largely operate with two main slabs—5% and 18%—along with a minimal lower rate and a higher rate for select goods.
Why it matters?
For consumers, the move could mean cheaper everyday goods and more affordable big-ticket items. For businesses, especially in manufacturing and retail, it promises a simpler tax regime and lower compliance costs. However, for states dependent on GST collections, the reforms could pose tough fiscal challenges without guaranteed safeguards. If cleared, this could be the most sweeping reform since GST’s launch in 2017—aimed at simplifying compliance, boosting consumption, and making the tax system more transparent.
With both opportunity and uncertainty in the air, the September 3-4 meeting will likely be one of the most closely watched GST Council sessions in recent years.
