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India's GST Overhaul: Simplified Tax Structure Aims to Lower Costs on Everyday Items

By Gireesh Vasishta
India's GST Overhaul: Simplified Tax Structure Aims to Lower Costs on Everyday Items

The proposal, announced as a "next-generation GST reform" by Prime Minister Narendra Modi during his Independence Day address on August 15, 2025, is intended to boost consumption, stimulate economic growth, and ease compliance for businesses. It has been sent to the Group of Ministers (GoM) on rate rationalization and is expected to be finalized at a GST Council meeting in September or October 2025, with implementation targeted before Diwali. The government anticipates that increased sales and better compliance will offset any short-term revenue losses from the lower tax rates.

The Indian government has proposed a major overhaul of the Goods and Services Tax (GST) structure, aiming to simplify it by reducing the current four main slabs (5%, 12%, 18%, and 28%) to two primary rates: 5% and 18%. Additionally, a special 40% rate is proposed for luxury and sin goods, such as tobacco and pan masala, which would apply to only five to seven items.


Under this plan: Approximately 99% of goods currently taxed at 12% are expected to shift to the 5% slab, making essentials like farm products, health items, handicrafts, and insurance more affordable.

Around 90% of goods in the 28% slab would move to the 18% category, reducing the tax burden on consumer durables and other items.Vogaan Men's Polo Shirt and Shorts Set | Summer Fashion Short Sleeve Solid Zipper 2 Pieces Outfits for Men

Essential food items will remain tax-free, and sectors like diamonds and precious stones will retain their existing tax structure to support labor-intensive and export-oriented industries.

The overall tax burden on tobacco will remain at 88%, despite the new 40% GST rate, due to additional cess.

The proposal, announced as a "next-generation GST reform" by Prime Minister Narendra Modi during his Independence Day address on August 15, 2025, is intended to boost consumption, stimulate economic growth, and ease compliance for businesses.

It has been sent to the Group of Ministers (GoM) on rate rationalization and is expected to be finalized at a GST Council meeting in September or October 2025, with implementation targeted before Diwali. The government anticipates that increased sales and better compliance will offset any short-term revenue losses from the lower tax rates.

However, some sources suggest conflicting slab revisions, such as merging into 6%, 13%, 18%, and 24% slabs, or retaining different structures like 7%, 15%, and 28%.

These discrepancies indicate that the final structure is still under discussion, and the GST Council's decision will clarify the exact rates. Businesses are advised to monitor official notifications from the Central Board of Indirect Taxes and Customs (CBIC) and the GST portal for updates to ensure compliance.