Why GST Needs a Reset
Since its rollout in July 2017, the Goods and Services Tax (GST) has dramatically altered India’s tax framework by merging numerous state and central levies into a single system. While it improved compliance and efficiency, the multi-slab structure and frequent revisions have often confused businesses and consumers alike. With India’s economy expanding at 7.8 percent in the first quarter of FY 2025–26 and new global trade challenges emerging, particularly after steep tariffs imposed by the US, there is mounting urgency to simplify the GST regime. The 56th meeting of the GST Council, chaired by Finance Minister Nirmala Sitharaman in New Delhi on 3–4 September, could mark a pivotal step in this reform journey.
Tax Slab Rationalisation: Towards Simplicity
Currently, GST is divided into four primary slabs — 5, 12, 18, and 28 percent. The Centre has proposed scrapping the 12 and 28 percent tiers, moving to a simpler two-tier framework of 5 and 18 percent. Goods will broadly fall under two categories: ‘merit’ items taxed at 5 percent and ‘standard’ items at 18 percent.
This restructuring, already endorsed by a Group of Ministers, aims to reduce compliance burdens and spur consumption. While the changes could cost the exchequer an estimated ₹50,000–₹80,000 crore, the government is banking on a demand surge to balance revenue losses. If approved, the revised rates could be implemented by 22 September, billed as a festive “Diwali gift” to traders.
What Gets Cheaper, What Gets Costlier
The shift promises relief for consumers on many essentials and household goods. Over 90 percent of products now taxed at 28 percent - such as televisions, refrigerators, washing machines, air conditioners, and smaller cars — may move to the 18 percent slab. Medicines, medical devices, ghee, nuts, bottled water, and snack items could also see price cuts.
Similarly, nearly all items in the 12 percent bracket - from bicycles, umbrellas, paneer, and fruit juices to notebooks and solar cookers — are expected to be taxed at just 5 percent. Erasers could even be exempted entirely.
On the other hand, synthetic yarns, carpets, certain handicrafts, apparel priced above ₹2,500, and coal might face higher taxes if shifted to 18 percent, potentially raising costs for industries and consumers alike.
Sin Goods and Luxury Items: New 40 Percent Slab
A fresh “sin tax” category is also on the table. Products such as alcohol, tobacco, cigarettes, and pan masala — currently taxed at 28 percent with an added cess — may be consolidated into a flat 40 percent bracket. Online gaming, horse racing, lottery, and casinos are likely to be included as well.
Luxury vehicles, particularly SUVs, could also face the 40 percent rate, while electric vehicles may be incentivised with a lower 5 percent rate, except for mid-range EVs priced between ₹20–40 lakh, which may fall into the 18 percent slab.
Relief for Insurance and Healthcare
One of the most people-friendly proposals is the removal of GST on health and life insurance, which currently attracts an 18 percent levy. This exemption would reduce costs for households and improve access to coverage. To replace the revenue from the expiring compensation cess (ending 31 October), the Centre is considering targeted green and health cesses.
Economic Impact and Political Fault Lines
Analysts suggest the reforms could add nearly ₹5.3 lakh crore to consumption — about 1.6 percent of GDP — bolstering India’s growth momentum. With India already surpassing Japan as the world’s fourth-largest economy, such measures could accelerate its rise toward third place by 2027–2030.
Yet, political challenges loom. Opposition parties argue the expiry of compensation cess will squeeze state finances, with losses projected between ₹85,000 crore and ₹2 lakh crore annually. They are expected to push back hard, framing the reforms as centralisation at the cost of federal revenue autonomy.
A Balancing Act for Growth
The upcoming GST Council decisions could reshape India’s taxation landscape, making it more business-friendly and consumer-oriented. Simplified slabs, lower rates on essentials, and relief on insurance would directly boost sentiment and spending power. At the same time, balancing state revenues, plugging fiscal gaps, and ensuring that higher taxes on certain goods do not stifle industries remain pressing concerns.
If executed thoughtfully, the reforms could mark a new phase in India’s economic journey — one where tax simplicity fuels growth while fairness and fiscal prudence remain at the core.
(With agency inputs)
