Prime Minister Narendra Modi has signaled a significant overhaul of the Goods and Services Tax (GST) regime, with potential tax cuts on essential goods and services expected around Diwali. During his Independence Day address on August 15, 2025, from the Red Fort, PM Modi termed the upcoming GST reforms a "Double Diwali" gift for the nation.

The proposed reforms aim to ease the tax burden on common citizens and benefit Micro, Small, and Medium Enterprises (MSMEs). The government is considering a substantial restructuring of the current multi-slab GST system, which has been in place since 2017 and includes rates of 0%, 5%, 12%, 18%, and 28%. This complex structure has faced criticism regarding compliance burdens and the taxation of essential goods.

According to PM Modi, the next-generation GST reforms would directly impact essential goods and daily needs, reducing the tax burden on the common man. The focus will be on simplifying the tax framework, which will bring significant relief and convenience. MSMEs and small industries are also expected to benefit greatly from these changes.

The government is contemplating some of the most significant changes to the GST structure in recent years. This includes the possible elimination of the 12% slab. Many essential items, such as ghee, soaps, snacks, and other household staples, could be moved to the 5% bracket, making them more affordable for consumers. These revisions are expected to be rolled out around Diwali.

Following Modi's address, the Finance Ministry released details about the planned GST revamp, which will focus on structural reforms, rate rationalization, and ease of living for taxpayers. Proposals have been sent to a Group of Ministers (GoM) formed by the GST Council for further examination. Structural reforms will address inverted duty structures and classification disputes, providing greater stability and predictability in tax rates. Rate rationalization will include reducing taxes on essential goods and moving towards a two-slab system.

The announcement coincides with India's push to reform its GST system. The government has expressed its intention to change GST rates and reduce the number of brackets under the tax regime introduced in 2017. The end of the compensation cess has created fiscal space, enabling greater flexibility to align and rationalize tax rates within the GST framework for long-term sustainability. The reforms are geared towards simplifying the tax structure, reducing the tax burden on essential items, and benefiting small businesses and consumers.