GST overhaul may lower prices on dairy, packaged foods, small cars, and consumer durables

The Centre is preparing to roll out a major revamp of the Goods and Services Tax (GST) regime, with the new structure likely to be unveiled around September or October during the 56th GST Council meeting. If approved by the Group of Ministers (GoM) through majority consensus, the revamped GST could significantly reduce the cost of various goods and services for consumers.

Under the draft proposal, essential items like ghee, butter, packaged foods, fruit juices, and packaged coconut water, currently taxed at 12 percent, may shift to the 5 percent GST slab. Footwear and apparel priced below ₹1,000 are also likely to move to the 5 percent rate.

The Fitment committee has drafted a simplified two-rate GST structure, to be submitted to the GoM on rate rationalisation. The plan aims to replace the current multi-slab system with two primary rates, 5 percent and 18 percent, eliminating the existing 12 percent and 28 percent slabs.

The compensation cess, which currently applies to several goods, is also proposed to be phased out and substituted with a flat 40 percent rate, levied on a narrowed list of five to seven sin goods, including tobacco and pan masala.

According to sources, nearly 99 percent of goods currently taxed at 12 percent are expected to shift to the 5 percent slab, while approximately 90 percent of items in the 28 percent category could move to 18 percent.

 "Common use and daily-use items will be in the 5 percent GST rate," a source said.

A tax cut is also being considered for small cars and two-wheelers under 250cc, reducing GST from 28 percent to 18 percent, which could spur a revival in demand in these segments. Similar reductions are likely for other high-taxed goods such as air conditioners, televisions up to 32 inches, and dishwashers. The cement industry could also benefit from a rate cut from 28 percent to 18 percent, offering potential cost relief to the manufacturing and real estate sectors.

Officials acknowledged that the proposed changes, estimated by some analysts to imply a revenue loss of 0.2 to 0.4 percent of GDP on an annualised basis, would be offset by a boost in household consumption. The expectation is that lower prices will stimulate demand, ultimately supporting broader economic growth.

The proposals, drafted by the GST fitment committee, will be reviewed by the GoM, led by Bihar Deputy Chief Minister Samrat Choudhary, on August 20 and 21. Upon achieving consensus within the seven-member GoM, the recommendations will be submitted to the GST Council for final consideration in mid-September.