Most items used by ordinary people are expected to be moved to the lower GST slab of 5% as part of the government’s GST rate rationalisation plan, according to official sources on Friday. The Centre will work closely with states in the coming weeks to build broad agreement on the proposal. Sources confirmed that food products and everyday-use goods will come under this 5% slab. If implemented, this is likely to boost demand and help the GDP grow. They also noted that no legislative changes are needed to roll out the plan.
The move follows Prime Minister Narendra Modi’s Independence Day announcement that people will receive a major gift this Diwali. He promised that this year would be a “double Diwali” for citizens as the government launches major GST reforms.
Two-Tier GST Structure Planned
Sources said the central government aims to scrap the current GST slabs of 12% and 28%, leaving only 5% and 18% rates. Under the plan, 99% of goods in the 12% category will shift to 5%, while 90% of products in the 28% category will move to 18%. Goods currently taxed at 28% will be reduced to 18%, and a new 40% slab is planned for “sin goods” such as tobacco and pan masala. This restructuring may have a slight negative effect on GST revenue. The proposal has been sent to the Group of Ministers for further talks.
Expected Economic Impact
According to sources, these reforms will help revive key sectors like agriculture, textiles, fertilisers, renewable energy, automobiles, handicrafts, healthcare, insurance, construction, and transport. A meeting of the GST Council is expected in September or October to review the proposal. The structural reforms will focus on correcting the inverted duty structure, aligning input and output tax in major sectors, supporting domestic production, and improving cash flow for small businesses. Classification issues will be resolved, and tax rates for snacks like namkeen and savouries will be streamlined, giving businesses long-term clarity.
Relief for Farmers and Common People
Rate rationalisation will create a simpler GST system with just two categories — merit and standard goods — keeping the focus on everyday needs and education. One major change will be lowering GST on farming equipment to help increase agricultural production.
Easier Compliance for Businesses
For better ease of living and reduced paperwork, 95 per cent of GST registrations will be processed within three days. Pre-filled tax returns will be introduced to cut manual work. The system will reduce mismatches, lower the number of compliance notices, and speed up refunds for exporters and those eligible under the IDS.
During his speech at the Red Fort, PM Modi said the government is bringing “next generation” GST reforms after eight years of changes that reduced tax burdens and simplified the system. He assured that everyday items will become cheaper, small businesses will benefit, and the economy will receive a fresh boost.
