India is rolling out the most dramatic change to its Goods and Services Tax (GST) system since it launched in 2017. In a major step toward simplification, the Group of Ministers (GoM) has officially accepted the Centre’s proposal to scrap the current 12% and 28% GST slabs, moving to a much leaner two-slab structure: 5% for essentials and 18% for most other goods and services.
This revamp is being pitched as a “next-generation” GST, designed not just to simplify taxes, but also to boost consumption, reduce compliance headaches, and bring more transparency into India’s indirect tax system.
What’s Now in the 5% Bracket?
The 5% GST slab will cover essential and mass-consumption goods, many of which were previously taxed at 12%. These include:
- Butter, cheese, ghee, and edible oils
- Fruit juices, dry fruits, packaged snacks
- Toothpaste, soaps, hair oil, and other personal care items
- Mobile phones and basic electronic accessories
- Bicycles, stationery, school bags, solar water heaters
- Health diagnostics and some over-the-counter medicines
This move is expected to make everyday household expenses lighter on the wallet, particularly for middle-class families and small businesses. Economists suggest this could boost demand in semi-urban and rural areas, where price sensitivity is high.
What Moves to 18%?
Items that were earlier taxed at 28, considered the “luxury” or “non-essential” category, are now largely being brought under the 18% slab. These include:
- White goods like air conditioners, refrigerators, washing machines, and televisions
- Cement, which has long been a high-tax item impacting the real estate and infrastructure sectors
- Small cars and two-wheelers, which may see a noticeable dip in prices
- Hotel stays, restaurants, and other services
With this shift, around 90% of items previously under the 28% slab will now be cheaper, which could be a huge win for consumer sentiment, especially ahead of the festive season.
What About the Remaining 28% and Beyond?
While the 28% slab is being mostly dismantled, a few “sin” and ultra-luxury items will move to a new special 40% slab, including:
- Tobacco products
- Pan masala
- Online gaming involving betting or gambling
This higher tax rate is intended to discourage consumption of these items while also ensuring states don’t lose out on significant revenue.
Is There a Catch?
Yes, there is a trade-off. Tax revenues are expected to dip initially, as lower GST rates naturally reduce collections. But the government is banking on higher consumption, better compliance, and a broader tax base to balance out the shortfall over time.
Analysts also point out that with GST compensation to states ending in 2026, this simplification could be a strategic step to ensure long-term sustainability of tax revenues, even without the additional cess burden.
What’s Next?
The GoM has submitted its recommendation to the GST Council, which is expected to take it up for final approval in the upcoming meetings. If cleared, the rollout is expected as early as Diwali 2025, perfect timing for retailers and consumers alike.
There are also ongoing discussions around removing GST on life and health insurance premiums, which could further ease the financial burden on the middle class. However, that’s still under consideration and will need detailed revenue impact analysis.
The Big Takeaway
This GST overhaul could be game-changing. It simplifies the tax system, reduces consumer costs, helps small businesses, and may even spur a mini consumption boom. While challenges remain, especially around revenue neutrality, the direction is clear: a simpler, smarter GST is coming.
If approved and executed well, this could go down as one of the most pro-consumer economic reforms in recent years.
