Govt green flags Scrapping of 12% and 18% GST Slabs
The move is being described by policymakers as the foundation for “GST 2.0,” a significant reform that promises to ease compliance while reducing costs for consumers.
In a major policy shift of the indirect tax-GST setup in India, the Group of Ministers (GoM) on Goods and Services Tax (GST) rate rationalization has reached an important consensus to restructure the existing tax slabs. At a high-level meeting held on Thursday, state finance ministers endorsed a plan to move away from the current four-tier system and replace it with a simpler, three-rate mechanism.
As part of the proposed changes, the 12% and 28% GST slabs will be eliminated, effectively consolidating the structure. Most goods and services will now fall under either the 5% or 18% categories, while a higher 40% rate will apply to a limited set of items classified as sin or luxury goods. Products such as tobacco and premium automobiles are expected to remain heavily taxed, with the GoM specifically recommending that all luxury cars be included under the 40% bracket.
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Officials familiar with the deliberations noted that nearly 99% of items currently taxed at 12% will be shifted into the lower 5% category. This change is likely to provide relief to households and smaller businesses, as it directly affects items of daily use. Likewise, almost 90% of goods that were previously under the steep 28% slab will now be taxed at 18%. This lowering of rates for consumer appliances and electronic goods is expected to substantially reduce out-of-pocket costs, particularly for middle-income families.
Everyday essentials stand to benefit under the rationalized system. Medicines, processed food products, footwear, clothing, and other basic household necessities will be covered under the reduced 5% rate. Meanwhile, large household appliances, televisions, and various durable consumer goods will fall into the 18% segment, down from the earlier 28%. Analysts believe this will not only bring immediate relief to consumers but also boost demand in the market for durable items.
The GoM’s conclusions come after extensive consultations with stakeholders and careful analysis of revenue implications by the finance ministry. The central government has expressed confidence that the streamlined framework will simplify compliance procedures, ease business operations, and reduce the overall tax burden on households, farmers, and the middle class.
The recommendations will now move to the GST Council for final consideration and approval.
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The Goods and Services Tax (GST) Council will convene its 56th meeting in New Delhi on September 3 and 4, 2025, according to an official memorandum issued by the GST Council Secretariat. The meetings will begin at 11:00 AM on both days.
The memorandum directs officials to convey the invitation to all Members of the Council for their participation in the two-day session.
If ratified, GST 2.0 would mark the most significant reform of the indirect tax regime since GST was first introduced in 2017, underlining a shift toward a simpler, fairer, and more growth-oriented tax system for India.
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