The Goods and Services Tax (GST) structure is set for one of its biggest simplifications yet. The government has proposed trimming the existing four-tier GST system of 5%, 12%, 18%, and 28% into a simpler two-rate system of 5% and 18%, with a separate higher rate applicable only on a limited set of luxury or demerit goods.
For consumers, this shift could translate into direct savings across a wide range of products and services—from big-ticket purchases to everyday essentials. For businesses, it could mean simpler compliance, lower costs, and a stronger push for consumption-led growth.
What’s changing?
Under the proposed structure:
- Small cars: GST may drop from 28% to 18%
- Air conditioners & televisions: From 28% to 18%
- Insurance premiums: From 18% to 5% or even nil
- Daily-use essentials: Some items may move from 5% to nil
In addition, several popular FMCG and packaged food items are likely to see reductions, moving into the 5% slab:
- Tooth powder
- Bhujia, namkeen, potato chips
- Ketchup, jam, mayonnaise
- Packaged juices
- Pasta, noodles
- Butter, condensed milk, ghee, cheese
- Milk-based beverages
Why this matters?
- Savings for households – With everyday essentials and consumer durables set to become more affordable, household budgets are likely to benefit.
- Boost to demand – Cheaper goods and services can revive consumption, particularly in price-sensitive categories.
- Job creation & growth – Increased demand may lead to higher production, more jobs, and greater economic activity.
- Competitiveness in global trade – Lower logistics costs and easier compliance can enhance India’s export competitiveness.
Beyond tax cuts
This proposed GST reset is not just about lowering rates—it’s about simplification, efficiency, and growth. By reducing slabs, compliance becomes easier for businesses, and consumers benefit from lower costs and greater purchasing power. Over time, this can create a multiplier effect across the economy.
In short: Cars, ACs, televisions, insurance, packaged foods, and many daily essentials could soon get cheaper. With fewer slabs and rationalised rates, GST is moving closer to a simpler, consumer-friendly tax system.
The plan aims to simplify the current four-slab system (5%, 12%, 18%, 28%) into just two primary rates—5% and 18%—along with a lower concessional rate for select items and a higher rate for a small set of luxury or demerit goods. If approved, this could make several essentials and high-value products more affordable while also simplifying compliance for businesses.
What may get cheaper?
Under the proposals, several categories are expected to move into lower GST brackets:
- Everyday essentials – Items like chips, namkeen, pasta, noodles, ketchup, jam, butter, ghee, cheese, milk-based beverages, and packaged juices may shift to the 5% slab.
- Daily-use products – Some items currently taxed at 5% may even move to nil tax.
- High-value goods – Cars, air conditioners, and televisions are likely to move from 28% to 18%.
- Services – Insurance premiums may see a reduction from 18% to 5% or nil.
What this could mean for households?
- Lower grocery spends if packaged food and dairy products move to 5% or nil.
- Affordable upgrades with cars, ACs, and televisions becoming less expensive under reduced GST.
- Reduced financial overheads if insurance premiums attract lower tax.
Why businesses may benefit too?
- Simpler compliance with only two slabs to manage.
- Higher demand as consumers respond to more affordable prices.
- Job creation potential in manufacturing, retail, and services.
- Improved competitiveness for exports with reduced costs.
The next step
These changes are still at the proposal stage and are under review by the Group of Ministers (GoM) and the GST Council. The final structure will depend on further discussions and approvals.
