The Centre has reportedly proposed a simpler GST system with two main rates—5% for essential goods and 18% for most others—and a higher 40% rate for a small list of “sin” goods and services. The plan has gone to the Group of Ministers on rate rationalisation, whose approval could pave the way for the GST Council’s formal go-ahead, sources said.In line with Prime Minister Narendra Modi’s Independence Day call for next-generation GST reforms, the aim is to replace the current multi-tier structure with fewer slabs by Diwali.This would be the biggest overhaul since GST’s launch in 2017. India currently has four slabs—5%, 12%, 18% and 28%—plus a cess on certain goods. Items like cars and appliances are taxed at 28%, personal care products, mobiles and insurance at 18%, many packaged foods at 12%, and essentials like sugar, tea and low-cost clothing at 5%. The reform aims to merge slabs, lower rates on common goods, and reduce classification disputes.
What changes on your bill: current vs likely mappingUnder the proposal, essentials such as sugar, tea, milk, and inexpensive clothing would stay at 5% or nil under exempt category. Many packaged foods and beverages now taxed at 12%—including branded staples, processed foods, and soft drinks—could drop to 5%, making them cheaper.The standard 18% GST would remain for goods and services like personal care products, mobile phones, and insurance. Consumer durables and vehicles now at 28% plus cess—such as air conditioners, refrigerators, and cars—could mostly move to 18%, with only demerit items kept higher.Demerit or luxury goods, such as cigarettes, select luxury products, and gambling services, would remain heavily taxed, moving to a special category of up to 40%, but with a narrower list.The economic why: demand, simplicity, stabilityLower taxes on everyday goods could reduce prices and boost spending, especially on food and daily essentials. Household spending grew about 7–7.6% in FY2024–25, up from 5.6% a year earlier. FMCG sales posted double-digit value growth in early 2025, with ~5% higher volumes as buyers opted for smaller packs. Rural demand is already driving home and personal care sales; rate cuts could accelerate this.A two-rate system also reduces classification disputes, a chronic GST issue. By collapsing the 12% and much of 28% into clean 5%/18% rates, the system becomes easier to navigate, audit and comply with—especially for SMEs and MSMEs. It aligns with global practice: a low rate for essentials, one standard rate for most goods, and a sin-tax band for a few.Voices from the ground: hopes and guardrailsM.S. Mani, Deloitte India, backs the two-rate shift as a way to cut disputes and align with global systems, but warns that in the absence of dedicated anti-profiteering provisions, businesses must self-regulate to pass on benefits.Mahesh Jaising, Deloitte India, calls a 5%/18% architecture potentially transformative, provided inverted duty corrections and state coordination are executed well.Rajat Bose, Shardul Amarchand Mangaldas, underscores tech-driven compliance—pre-filled returns, faster refunds—and the emphasis on cooperative federalism via the Council.Abhishek Jain & Rajeev Dimri, KPMG, seek rate relief on everyday items and insurance, clarity on intermediary exports, and auto-populated MSME compliance; they stress balancing revenue with consumer interest.Vivek Jalan, Tax Connect, argues for a social face—lower GST on autism centres, rationalising drones and EV battery parts to fix related inversions—while expanding 5% coverage for low-price mass sachets.
Grant Thornton Bharat’s Krishan Arora & Manoj Mishra highlight demand and manufacturing competitiveness benefits if 12%→5% and 28%→18% migrations are ambitious.Anti-profiteering: what changes?The National Anti-Profiteering Authority’s tenure ended in 2022, with the Competition Commission of India now handling complaints. This puts more onus on market conduct and competition oversight rather than a dedicated GST body—making transparent pass-through of rate cuts critical.Snapshot: where consumption could lift firstIf rates are revised, packaged staples and processed foods could see the fastest demand boost from a 12%→5% cut. Home and personal care could benefit if 12% items drop to 5%, building on rural-led momentum.In consumer durables, a 28%→18% cut for non-demerit items could drive festive-season buying. In insurance, a rate cut from 18% could ease household costs, though the impact depends on input tax credits.The compliance arc: fewer slabs, better plumbingThe Centre has signalled technology-driven registration, pre-filled returns, and faster refunds. For MSMEs, automation and reduced reconciliation could be as meaningful as rate cuts. A predictable two-slab regime also helps businesses plan pricing, capex, and working capital.What can be the flip side?If the GoM and Council cut GST from 12% to 5% and reduce most non-demerit goods from 28% to 18%, consumers will quickly benefit from lower prices on food, daily-use items, and many durables. With household spending and FMCG sales already picking up, the festive season could see a boost in demand, especially in rural areas and for budget products. A simpler tax structure would also reduce disputes over product classification.Risks to watch:Revenue neutrality: A deep 12%→5% shift narrows the tax base unless offset by better compliance, buoyant consumption, or a carefully ring-fenced demerit basket.Pass-through discipline: With anti-profiteering now under CCI’s general competition regime, there’s less of a bespoke GST policeman—transparent pricing and competition must do the heavy lifting.Fitment fights: The devil lies in item-by-item placement. Lobbying around borderline categories (e.g., premium foods, certain appliances, personal care sub-segments) can delay clarity.State buy-in: The Council’s consensus model is a strength, but it can slow timelines; cooperative federalism remains the linchpin.Timeline and what’s nextThe Finance Ministry is said to have sent the two-tier proposal to the GoM, with a Diwali rollout targeted pending the GoM’s report and Council approval. The fitment matrix will list which 12% items move to 5% and which 28% goods drop to 18%, with a slim demerit list at ~40% (including cess).If the Council ultimately lands close to the current blueprint, India would join the cohort of economies that run a simple “merit + standard + demerit” VAT/GST template—lowering friction for businesses, easing household budgets, and lending predictability to a maturing tax regime. The final word, as ever in GST, will come from the fitment tables—but this time, there may simply be far fewer rows.
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