GST Council has convened for a two-day meeting, and everyone is watching closely. At the top of the agenda is a massive overhaul of the GST system, a reform that could simplify the tax structure and put more money back in the pockets of consumers. The Centre is pushing for a bold move: a two-slab system with rates of just 5% and 18%, a significant shift from the current four-tier structure.
Led by Union Finance Minister Nirmala Sitharaman, the council—which includes finance ministers from every state—is set to debate these changes. The final decisions are expected to be announced at the end of the meeting on September 4.
The New GST Vision: Simpler and Cheaper
This proposed “next-gen” GST reform aims to scrap the existing 12% and 28% tax slabs. Most products currently in these brackets would be shifted to the lower 5% and 18% rates. The government also wants to introduce a special, higher 40% rate for luxury and “demerit” goods like tobacco and high-end cars.
The biggest winner in this plan? The average Indian consumer. Essential items like butter, drinking water, and even medicines could move from the 12% to the 5% slab. Everyday products such as bicycles, umbrellas, and electronics like certain washing machines and refrigerators could also become more affordable as they shift from the 28% to the 18% slab.
The EV Debate: 5% vs. 18%
One of the most anticipated points of debate is the tax on electric vehicles (EVs). While a Group of Ministers (GoM) suggested an 18% GST on EVs priced up to ₹40 lakh, the Centre is strongly advocating for a lower 5% rate. The goal? To boost EV adoption and push India toward a greener future. This difference of opinion will be a key discussion point during the meeting.
States Demand a Safety Net
While the plan is being welcomed for its potential to lower prices and ease business compliance, not everyone is on board. Eight opposition-ruled states, including Kerala, Punjab, and West Bengal, are raising a major red flag: a potential loss of revenue. They argue that cutting tax rates will reduce their collections and are demanding a new compensation mechanism to protect their finances.
The GST compensation cess, which was created to cover state revenue shortfalls for the first five years of GST, officially ended in June 2022. While it was extended to repay loans taken during the pandemic, the Council is considering winding it down even earlier. This creates a challenging balance for the Centre, which must find a way to implement reform without destabilizing state budgets.
The outcome of this meeting will have a far-reaching impact on businesses and consumers alike, as the government seeks to balance the promise of a simplified tax system with the reality of revenue stability for the states.