The much-discussed overhaul of India’s Goods and Services Tax (GST) is finally gaining momentum. In a significant development, the Group of Ministers (GoM) tasked with GST rate rationalization has agreed to simplify the tax structure by reducing the number of slabs from four to two. This marks a major step toward what’s being dubbed as GST 2.0, a move designed to streamline taxation and ease the burden on both businesses and consumers.
Currently, GST operates under four tax brackets: 5%, 12%, 18%, and 28%. The new system will collapse those into just two primary rates: 5% and 18%. The 12% and 28% slabs will be phased out entirely. However, a higher 40% levy will remain for certain ‘sin goods,’ including tobacco and select luxury items like high-end cars.
This restructuring is expected to bring widespread relief. Nearly 99% of goods previously taxed at 12% will drop to the 5% slab, while about 90% of items under the 28% bracket will shift to 18%. Everyday essentials like medicines, processed food, clothing, and footwear are likely to benefit from the lower rate. Meanwhile, larger household appliances and electronics, which previously fell under the steep 28% category, will now be taxed at 18%, potentially making them more affordable for middle-class families.
The GoM, led by Bihar Deputy Chief Minister Samrat Choudhary, included key finance ministers from states like Uttar Pradesh, Rajasthan, West Bengal, Karnataka, and Kerala. After reviewing detailed proposals from the Finance Ministry, the panel reached a consensus on the new structure.
Union Finance Minister Nirmala Sitharaman has emphasized the benefits of the reform, stating that it will offer significant relief to common citizens, farmers, and small businesses. The goal is to create a simpler and more transparent tax system that fosters economic growth. One of the standout discussions in the meeting revolved around exempting health and life insurance premiums from GST. If approved, this could save policyholders a substantial amount, though states have urged safeguards to ensure insurers pass on the benefits.
The recommendations will now move to the GST Council, which includes representatives from all states and is chaired by the Finance Minister. A final decision is expected soon, potentially marking the most significant GST reform since its inception in 2017. With a simplified two-slab structure on the horizon, businesses could see easier compliance, while consumers may enjoy lighter tax burdens on everyday purchases.
The shift to GST 2.0 reflects the government’s commitment to refining the tax system, making it more efficient and consumer-friendly. If implemented, these changes could redefine India’s indirect tax landscape for years to come.