WHAT’S HAPPENING?
GST revamp on the cards: Since its launch in 2017, the Goods and Services Tax (GST) is set to undergo its first major revamp. The biggest takeaway from this move from the common man’s perspective is that the GST slabs may be rejigged with items in the 12% category of tax possibly moving to the 5% bracket.
According to an ET report, the Prime Minister’s Office has approved in-principle the substantial restructuring of the GST framework.
Following the monsoon session of parliament, the new GST revamp proposal is expected to be presented to the GST Council, the highest decision-making authority for indirect taxes, which will meet in August.
BACKGROUND: WHAT IS GST?
- The Goods and Services Tax (GST) is a comprehensive indirect tax levied on the manufacture, sale, and consumption of goods and services across India.
- Introduced in 2017, GST subsumed several state and central taxes and replaced a fragmented tax regime.
- It is administered by the GST Council, which includes the Union Finance Minister and Finance Ministers of all states.
EXISTING GST STRUCTURE (as of 2024)
Slab Examples of Goods/Services
0% Unbranded food grains, fresh fruits, vegetables
5% Essentials like edible oils, footwear under र1, 000
12% Processed foods, mobile phones, fruit juices
18% Soaps, toothpaste, ACs, restaurants
28% Luxury goods, cars, tobacco
+ Cess Applied to sin goods like pan masala, coal, aerated drinks
- There are also special rates like 0.25% for precious stones and 3% for gold.
WHAT IS BEING PROPOSED?
Removal of the 12% GST Slab
- Items currently taxed at 12% could be:
- Moved down to 5% (for essential or mass-consumption items)
- Or moved up to 18% (for relatively higher-end consumption items)
Simplification of Tax Structure
- Instead of five major tax slabs, India may move to a three-slab structure:
- 5%, 18%, and 28% (with 0% for essentials continuing)
- Special rates (0.25% and 3%) may remain untouched
3.Cess Rationalisation
- The cess used to repay COVID-era compensation loans is under review.
- The र2.7 lakh crore debt taken during the pandemic is being repaid from cess collections valid until March 31, 2026
The 5% slab covers abotf 219% 0f goody 12% slab covers19%, and 18% slab includesnearly 44% of goods.
Only 3% of items fall under the highest 28% slab.
WHY THE 12% SLAB IS TARGETED
- The 12% slab has overlapping items that are hard to categorize.
- Removing it allows a cleaner split between merit goods and non-merit goods.
- It is politically and economically easier to distribute 12% items than to collapse the 5% or 18% slabs, which affect either the poor or government revenue significantly.
WHAT MAY MOVE FROM 12%?
Goods possibly shifting to 5%:
- Ghee, butter
- Processed foods like snacks
- Fruit juices
- Some mobile phone components
- Umbrellas_
Goods possibly shifting to 18%
- Mobile phones (already partially at 18%)
- Ready-made garments above र1, 000
- Household electronics
- Fertilizers (though politically sensitive)
IMPACT ANALYSIS
For Consumers:
Mixed effects:
- Some goods will become cheaper (if moved to 5%)
- Some goods will become more expensive (if moved to 18%)
For Businesses:
- Simpler input tax credit claims
- Fewer classification disputes
- MSMEs may face less confusion on product pricing
For Government & States;
- Might lead to initial revenue volatility
- But long-term increase in tax compliance and transparency
- State governments are being consulted to ensure compensation adjustments if revenue dips
CRITICISMS/CHALLENGES
- States’ reluctance: If many items go to 5%, states may fear revenue loss.
- Inflationary risk: Moving some 12% items to 18% could spike retail prices temporarily
- Political pushback: States going to polls may resist tax hikes on sensitive goods
TIMELINE
- July 2025: PMO gives green signal for overhaul.
- August 2025: Expecte( GST Cõuncil meeting to present full proposal (after the monsoon session of Parliament).
- Implementation timeline: Possibly FY 2026 onwards (April 2026), subject to state consensus.