Centre’s Landmark GST Overhaul Plan: Multi-Slab System May Give Way to 2-Rate Regime, Onus on States
The Centre has proposed a major overhaul of the Goods and Services Tax (GST) structure, aiming to simplify the existing multi-slab system into a more streamlined model. As part of the “Diwali bonanza” announced by Prime Minister Narendra Modi during his Independence Day speech, the plan suggests reducing the current four GST slabs to just two — 5% and 18%. The government is keen to implement this consumer- and trader-friendly framework before the festive season.
According to sources accessed by News18, the core of the proposal involves rationalising rates significantly. Around 99% of everyday commodities — including items for students, farmers, and the aspirational middle class — would fall under the lowest tax category of 0–5%. Products from the textile and handicrafts sectors, essential for rural livelihoods, are included in this category. Additionally, goods and services such as medicines, healthcare, and insurance are also expected to see a reduction in GST rates if the proposal is approved.
The new structure also addresses items currently in higher tax slabs. About 90% of these goods would be shifted to the new 18% slab. A separate, higher category would be created for a few “sin items” considered harmful to health, such as tobacco and pan masala. Some forms of gaming may also be included, with these items subjected to the maximum permissible GST rate of 40%.
Government sources say work on the proposal has been ongoing since 2022, with feedback from multiple stakeholders. The initiative is driven by a directive from the Prime Minister to make the GST system more growth-friendly and beneficial for consumers and MSMEs. Other anticipated advantages include faster refunds and simpler tax calculations.
However, final approval rests with the states. The proposal will now be presented to the GST Council, with a meeting likely in September or October. Some opposition-ruled states may resist, citing potential short-term revenue losses. The Centre, however, believes the new structure will boost consumption and, in turn, GDP growth. It has urged all states to support the reform, highlighting the collective economic benefits.
