The Goods and Services Tax (GST) system is set for a major simplification with the government proposing to reduce the number of slabs. This move aims to make GST more transparent, easier to understand, and beneficial for both businesses and consumers.
Key changes proposed
The upcoming GST reforms are likely to simplify the tax structure and make it more consumer- and business-friendly. With fewer slabs and clearer classifications, businesses may find compliance easier, and consumers could benefit from reduced costs on everyday essentials and services.
- 12% and 28% slabs to be removed
- 99% of items in the 12% slab to shift to 5%
- 90% of goods and services in the 28% slab to move to 18%
- No cess to be levied over and above the GST rates
- Sub-1% concessional rate to continue for a very limited set of items (such as diamonds and precious metals)
- 40% rate to apply on only a few demerit or luxury goods
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 this matters?
- Simplified structure: Businesses will deal with fewer slabs, reducing confusion and classification issues.
- Lower prices for many goods: Items moving from 12% to 5% and from 28% to 18% will become more affordable.
- Boost to consumption: Reduced tax rates are expected to increase demand, balancing any short-term revenue loss.
- Ease of compliance: Filing returns and managing GST calculations will be more straightforward for businesses.
What it means for businesses and consumers?
- For consumers: Many commonly used goods and services will get cheaper, reducing the overall tax burden.
- For businesses: Compliance will be simpler, with fewer slabs to work with and lower chances of disputes or errors.
- For the economy: Rationalised GST rates are expected to encourage consumption, expand the tax base, and reduce evasion.
The way forward
The proposal on GST rate rationalisation has been shared with the Group of Ministers (GoM) under the GST Council for review. Once finalised and implemented, the new structure will mark a significant step towards creating a simpler, more efficient GST framework.
