Big GST reset: GoM clears two-slab plan; 90% goods may get cheaper

The Group of Ministers (GoM) on GST rate rationalisation has agreed to scrap the 12% and 28% slabs, moving towards a simplified two-rate structure of 5% and 18%. The decision, taken at a key meeting on Thursday, could bring down prices for most goods and services.

According to the plan, 99% of items taxed at 12% will shift to the lower 5% slab, while nearly 90% of items currently in the 28% category will move to 18%. A higher 40% levy will continue on a limited set of goods, including tobacco and luxury items, with luxury cars also recommended for inclusion under the 40% bracket.

The GoM was chaired by Bihar Deputy Chief Minister Samrat Choudhary and included Uttar Pradesh Finance Minister Suresh Kumar Khanna, Rajasthan Health Minister Gajendra Singh, West Bengal Finance Minister Chandrima Bhattacharya, Karnataka Revenue Minister Krishna Byre Gowda, and Kerala Finance Minister K N Balagopal. The panel reached broad agreement after reviewing proposals submitted by the Finance Ministry.

"Both the proposals of the Centre have been accepted by the GoM on rate rationalisation," Choudhary told reporters after the meeting of the panel. 

Finance Minister Nirmala Sitharaman earlier told the GoM, "The rate rationalisation will provide greater relief to the common man, farmers, the middle class and MSMEs, while ensuring a simplified, transparent and growth-oriented tax regime."

The Centre has projected that the restructuring will benefit households by lowering GST on essential and everyday goods. Medicines, processed food, footwear, clothing, and household items are expected to move into the 5% slab. Consumer durables such as televisions and large appliances, currently taxed at 28%, would drop to 18%, reducing costs for middle-class families.

The GoM also discussed a proposal to exempt health and life insurance premiums for individuals from GST. Officials estimate such an exemption could cost the exchequer about Rs 9,700 crore annually. While most states supported the idea, members stressed the need for safeguards to ensure insurers pass on benefits to policyholders instead of keeping premiums unchanged.

Uttar Pradesh Finance Minister Khanna said the Centre's proposal also includes levying 40% tax on ultra luxury and sin goods. West Bengal FM Bhattacharya said her state has proposed a levy on top of the 40% GST rate so that the current tax incidence on ultra luxury goods, like cars, and sin goods, is maintained.

The recommendations will be placed before the GST Council, chaired by the Union Finance Minister and comprising representatives of all states. The Council will take a final call in its upcoming meeting. If approved, the move will mark the biggest reform since GST's rollout in 2017, with the government highlighting benefits for both consumers and businesses through lower rates and simpler compliance.

At present, GST is a 4-tier structure of 5, 12, 18 and 28%. While food items are either taxed at 0 or 5%, luxury and sin goods are taxed at 28%. On top of the 28% slab, cess at varied rates is levied on demerit and luxury goods, like cars.

(With inputs from PTI)