In a major announcement following his Independence Day address, Prime Minister Narendra Modi promised a “double Diwali gift” to the nation in the form of “next-generation GST reforms.” The government has since proposed a revamped Goods and Services Tax (GST) regime, with a simplified structure of just two main rates. This new framework aims to reduce the tax burden on everyday items and benefit both consumers and small businesses.
A Simplified Two-Slab System
According to government sources, the proposed GST overhaul will simplify the existing four-tier system (5%, 12%, 18%, and 28%) into a two-rate structure.
- 5% rate: This “merit” rate will be applied to essential and daily-use products, providing significant relief for households.
- 18% rate: This will serve as the “standard” rate, with a substantial portion of items currently in the 28% bracket expected to be shifted here.
Additionally, a special 40% GST rate is proposed for select luxury and “sin” goods. The changes are expected to be announced around Diwali, delivering on the Prime Minister’s promise.
In his speech from the Red Fort, PM Modi stated that after eight years of the GST regime’s implementation, the time had come for a review. “Tax rates on essential goods and daily needs will be reduced under a simplified framework. This will bring significant relief and convenience. Our MSMEs and small industries will also benefit greatly from these changes,” he said.
The reforms are built on three pillars: structural changes, rate rationalization, and ease of living, and are designed to correct inverted duty structures and simplify compliance. The government has submitted its proposal to a Group of Ministers (GoM) under the GST Council, which is expected to deliberate on the recommendations in a meeting next month.