The Centre plans to remove 12% and 28% GST slabs, keeping only 5% and 18% rates, with a 40% slab for sin goods. The decision is expected by October and may apply before Diwali.
The Central Government has proposed a major change in the Goods and Services Tax (GST) system. It plans to remove the current 12% and 28% tax slabs and keep only two main rates, 5% and 18%. For products like tobacco and pan masala, which are considered harmful or ‘sin goods’, the government has suggested a new high slab of 40%. As part of the plan, 99% of items currently in the 12% slab will move to the 5% slab, while 90% of items in the 28% slab will shift to the 18% slab. Consumer goods in the 28% category will also be moved to 18%.
Higher tax for sin goods
The government has proposed a new 40% GST rate for “sin goods” such as tobacco and pan masala. Officials say this will discourage consumption and increase revenue from these products.
PM Modi’s Diwali ‘gift’ promise
The move follows Prime Minister Narendra Modi’s Independence Day announcement from the Red Fort. He said the government is preparing a “next-generation GST reform” as a “big Diwali gift” for the people.
“In the last eight years, we reduced the tax burden and simplified GST. Now it is time to review it again. This reform will lower taxes on essential services, help MSMEs, and make daily-use products cheaper,” PM Modi said.
Items likely to get cheaper
Sources say the rationalisation plan includes tax cuts for farm products, health-related items, handicrafts, and insurance. Health and life insurance premiums may become more affordable. The government expects the move to boost consumption and help economic growth.
Next steps for approval
The proposal has been sent to all states and to the Group of Ministers (GoM) of the GST Council. The GoM will study the plan, and the GST Council is likely to discuss it in a two-day meeting in September or October.
The government aims to finalise the changes before Diwali. While the reduced rates may cause a short-term drop in revenue, officials believe higher sales and better tax compliance will balance the impact.
If approved, this will be the biggest change in GST since its introduction in 2017.