Centre mulls major GST revamp, plans to cut slabs from four to two

The central government is considering a significant overhaul of the Goods and Services Tax (GST) structure by reducing the current four slabs to just two — 5% and 18% — government sources revealed.

Under the proposal, 99% of items currently taxed at 12% would shift to the 5% slab, while 90% of items in the 28% slab would move to the 18% category.

A special 40% rate would apply to a small list of luxury and “sin” goods — such as tobacco, gutkha, and cigarettes — comprising just 5-7 items. This list will not include aspirational household appliances like refrigerators, air conditioners, or washing machines.

Petroleum products will remain outside the GST framework.

Labour-intensive and export-oriented sectors, including diamonds and precious stones, would continue to be taxed at existing rates.

According to sources, the total tax incidence will stay around 88%, with the GST restructuring expected to boost consumption enough to offset any revenue loss from the rate cuts.

Union Finance Ministry data shows that products in the 18% slab currently account for 67% of GST revenue, followed by 28% slab items at 11%, 12% slab items at 5%, and the 5% slab at 7%.

The reform proposal comes shortly after Prime Minister Narendra Modi’s Independence Day address, where he promised GST changes in time for a “double Diwali.” The focus will be on rate rationalisation to benefit a broad range of citizens, including the middle class, women, students, and farmers.

The GST Council — comprising Union and state finance ministers — is expected to discuss and possibly approve the proposal in September or October.

The plan coincides with the eighth anniversary of GST, introduced in 2017 as one of India’s most sweeping post-independence tax reforms, credited with unifying the indirect tax system and improving ease of doing business for small and medium enterprises.