The government is considering a significant reset of the Goods and Services Tax (GST) regime with a simplified two-rate structure of 5% and 18%, while imposing a 40% rate on “sin goods” such as tobacco and pan masala, according to government sources. The proposal has reportedly been sent to the GST Council, which is expected to deliberate on the changes during a two-day meeting in September, with a rollout targeted ahead of Diwali, sources said.
In his Independence Day address, Prime Minister Narendra Modi announced that a “next-generation GST reform” would be unveiled soon, calling it a Diwali “gift.” He said the government had reviewed the GST framework after consultations with states and was ready to introduce a revamped system aimed at simplifying taxes and easing burdens on citizens and businesses.
As per sources, the rationalisation plan includes reductions for farm-related products, health-linked items, handicrafts, and insurance, with the aim of boosting consumption and supporting growth. At present, GST is levied across five primary slabs 0%, 5%, 12%, 18%, and 28% with 12% and 18% being the most widely applied. The proposed overhaul would eliminate the 12% slab, shifting items into either the 5% or 18% category.
PM Modi said the reform would make essential services cheaper for individuals, benefit MSMEs, and bring down prices of daily-use products while giving a push to the broader economy. Sources added that essential services like health and life insurance are expected to become more affordable under the revised structure.
While the government anticipates some short-term pressure on revenue due to lower rates, it expects the impact to be offset over time through higher consumption and improved compliance. The GST Council is slated to finalise the structure in September, with implementation planned before Diwali, sources said.
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