The Goods and Services Tax (GST) Council has reportedly approved a significant overhaul of the existing tax structure, moving towards a dual tax rate system of 5% and 18%. This decision, made during the 56th GST Council Meeting on September 3, 2025, marks a major shift from the current four-tier structure and is expected to impact various sectors and consumers.

The proposed changes involve eliminating the 12% and 28% GST slabs. Items currently taxed at 12% are likely to be moved to the 5% slab, while a large portion of goods in the 28% category will be taxed at 18%. A special rate of 40% may be levied on a select few items, including tobacco and ultra-luxury goods.

According to reports, almost all items (99%) in the 12% tax bracket, which include products like butter, dry fruits, and fruit juices, will be moved to the 5% tax rate. Similarly, around 90% of items currently under the 28% slab, such as electronics like ACs, TVs, and refrigerators, as well as goods like cement, will be moved to the 18% slab.

This restructuring aims to reduce the tax burden on common household goods, potentially lowering household bills by 12-15%. Essential items, food, apparel, medicines, and even movie tickets could fall under the lowest slab of 5%. The proposed tax cuts could benefit sectors like FMCG, automobiles, and cement, while providing relief to consumers.

In addition to the revised tax structure, the GST Council is also considering measures to simplify compliance for Micro, Small & Medium Enterprises (MSMEs), potentially streamlining the registration process to within three days. The council has also agreed to clear refunds stuck under inverted duty structure for textiles, pharma, chemical, fertilisers and other industries in seven days. Furthermore, there are discussions on exempting health insurance premiums for senior citizens from GST and reducing rates for life-saving drugs.

The proposed reforms are expected to be implemented in the coming weeks, ahead of the festive season. While Andhra Pradesh's Telugu Desam Party (TDP) supports the Centre's GST rate proposals, some opposition-ruled states have requested compensation for potential revenue losses. The Centre's GST reform proposal is based on structural reforms, rate rationalization, and ease of living. The current GST structure sees the 18% slab contribute 65% of the total GST collection, while the 5% slab contributes 7%. The 28% slab on luxury and sin goods accounts for 11% of the revenue, and the 12% slab accounts for 5%.

The GST Council's decision to streamline the tax structure is seen as a move to boost economic growth by increasing consumption.