GST reforms: Average GST liability rate is expected to fall to 4-6% under new structure
NIPFP study says GST rate reductions are expected to enhance consumers' purchasing power
- Dec 1, 2025,
- Updated Dec 1, 2025 5:57 PM IST
The comprehensive overhaul of the rate structure of the goods and services tax (GST) under the Next Gen reforms is seen to have significantly lowered the tax liability on households, which is expected to enhance the purchasing powers of consumers, a new study has found.
In fact, the average GST liability rate is expected to fall to 4-6% under the new structure as against 5-7% under the old structure, said the study titled Assessment of the Impact of GST Rate Restructuring on Consumers’ GST Liability in India by the National Institute of Public Finance and Policy (NIPFP).
“The findings of this study suggest that GST liability on household consumption expenditure will decrease by 10% to 16% under the new GST rate structure compared to the previous one… We observe a one percentage point decline in GST liability across all MPCE fractile classes under the new GST rate structure compared to the old one,” found the study undertaken by Sacchidananda Mukherjee, Professor, NIPFP.
In rural areas, the estimated average GST liability declined to Rs 132-199 under the new structure from Rs 165-229 under the old structure. Consequently, the estimated decrease in GST liability is 13% to 20%. In urban areas, the estimated average GST liability decreased to Rs 231-329 under the new structure from Rs 287-378 under the old structure.
“If rural consumers’ savings of Rs 29-33 in GST liability under the new structure are spent, for example, on items attracting an 18% GST rate, the estimated decrease in GST liability will be 10% to 16%. Similarly, in urban areas, the reduction will be 11% to 16%,”it said.
The study is based using the National Sample Survey Office’s (NSSO) Household Consumption Expenditure Survey (HCES) 2022-23, which covers 448 lines of items. OF these, it used 390 consumption items for which average Monthly Per Capita Expenditure (MPCEs) are available for rural and urban areas.
It found that the combined share of the average MPCE under the ‘Exempt to Low (5%)’ GST rate category increases from three-thirds (65%) to three-fourths (75%) between the old and new GST rate structures. “The share of all other GST rate categories has declined,” it further said.
As part of the Next Gen GST reforms, the government has rationalised rates of the indirect tax levy with two main rates of 5% and 18% along with a 40% rate on sin goods such as tobacco and pan masala and specified ultra luxury goods. The 12% and 28% rates have been done away with and the compensation cess is also set to expire.
The comprehensive overhaul of the rate structure of the goods and services tax (GST) under the Next Gen reforms is seen to have significantly lowered the tax liability on households, which is expected to enhance the purchasing powers of consumers, a new study has found.
In fact, the average GST liability rate is expected to fall to 4-6% under the new structure as against 5-7% under the old structure, said the study titled Assessment of the Impact of GST Rate Restructuring on Consumers’ GST Liability in India by the National Institute of Public Finance and Policy (NIPFP).
“The findings of this study suggest that GST liability on household consumption expenditure will decrease by 10% to 16% under the new GST rate structure compared to the previous one… We observe a one percentage point decline in GST liability across all MPCE fractile classes under the new GST rate structure compared to the old one,” found the study undertaken by Sacchidananda Mukherjee, Professor, NIPFP.
In rural areas, the estimated average GST liability declined to Rs 132-199 under the new structure from Rs 165-229 under the old structure. Consequently, the estimated decrease in GST liability is 13% to 20%. In urban areas, the estimated average GST liability decreased to Rs 231-329 under the new structure from Rs 287-378 under the old structure.
“If rural consumers’ savings of Rs 29-33 in GST liability under the new structure are spent, for example, on items attracting an 18% GST rate, the estimated decrease in GST liability will be 10% to 16%. Similarly, in urban areas, the reduction will be 11% to 16%,”it said.
The study is based using the National Sample Survey Office’s (NSSO) Household Consumption Expenditure Survey (HCES) 2022-23, which covers 448 lines of items. OF these, it used 390 consumption items for which average Monthly Per Capita Expenditure (MPCEs) are available for rural and urban areas.
It found that the combined share of the average MPCE under the ‘Exempt to Low (5%)’ GST rate category increases from three-thirds (65%) to three-fourths (75%) between the old and new GST rate structures. “The share of all other GST rate categories has declined,” it further said.
As part of the Next Gen GST reforms, the government has rationalised rates of the indirect tax levy with two main rates of 5% and 18% along with a 40% rate on sin goods such as tobacco and pan masala and specified ultra luxury goods. The 12% and 28% rates have been done away with and the compensation cess is also set to expire.