The Goods and Services Tax (GST) Council convened its 56th meeting on September 3, 2025, with a focus on overhauling the existing tax structure. A key proposal on the table was to reduce the number of GST rates from four to two, retaining the 5% and 18% slabs while eliminating the 12% and 28% slabs. This "next-gen" GST reform, as it has been called, aims to simplify the tax regime, boost consumption, and ease compliance for businesses.
Items Getting Cheaper
The proposed changes are expected to bring down the prices of several consumer products. Key highlights include:
- Footwear and Apparel: The Council is likely to have approved a reduced tax rate of 5% on footwear and apparel priced up to Rs 2,500. Previously, these items were taxed at 5% for prices up to Rs 1,000 and at 12% for prices above that.
- Daily Essentials: Under the plan, nearly all goods currently in the 12% slab are expected to move to the 5% category. This includes staples like ghee, nuts, packaged drinking water (20-litre cans), non-aerated beverages, and namkeen.
- Household Items: Common household items such as pencils, bicycles, umbrellas, and hairpins could also see their taxes reduced to 5%.
- Electronics: Electronic appliances may also become more affordable. The GST on TVs, monitors, projectors, and set-top boxes has been cut from 28% to 18%.
- Small Diesel Cars: The tax rate on diesel-powered motor vehicles with an engine capacity of up to 1500 cc and a length not exceeding 4,000 mm has been reduced from 28% to 18%.
- Other Items: Dishwashing machines have seen a tax reduction from 28% to 18%.
Items Getting Costlier
While the focus is largely on reducing tax rates, some items may become more expensive. The Council is considering introducing a new 40% rate for certain luxury and demerit goods. These could include:
- Premium luxury cars
- High-end motorbikes
- Carbonated drinks
- Tobacco products
- Pan masala
Other Key Decisions and Considerations
- Dual Tax Rate Structure: The GST Council has approved a dual tax rate structure of 5% and 18%, effectively removing the 12% and 28% slabs. This new structure is expected to be implemented from September 22.
- Compensation to States: Opposition-ruled states have raised concerns about potential revenue losses due to the GST cuts and have demanded a clear compensation mechanism. They have proposed a cess on luxury goods to compensate states for any revenue shortfall.
- Simplified Compliance: The Council has approved measures to ease the burden of compliance on businesses. This includes reducing the registration time for MSMEs (Micro, Small & Medium Enterprises) from 30 days to just three days. A proposal for automated GST refunds for exporters has also been cleared.
- Revenue Loss: The revenue loss from the new GST slabs is estimated to be significant.
- Impact on Key Sectors: Several sectors are expected to benefit from the rate overhaul, including textiles, fertilizers, renewable energy, automotive, handicrafts, agriculture, health, and insurance.
- Next-Generation Reforms: The discussions also included compliance simplification and measures such as pre-filled returns and automated GST refunds, as part of next-generation GST reforms aimed for implementation by early October 2025.
- Health Insurance: The Council is likely to exempt health insurance premiums for senior citizens from GST and slash rates for life-saving drugs.
The GST Council's decisions are poised to have a wide-ranging impact on businesses and consumers alike. While many items are expected to become more affordable, some luxury goods may see a price increase. The simplification of the tax structure and the measures to ease compliance are also expected to benefit businesses.
