Govt proposes GST overhaul; 12%, 28% rates to be dropped

Mint

3 days ago

New Delhi: In a major overhaul of the goods and services tax (GST) structure, the Central government has proposed to do away with the 12% and 28% tax slabs, which is expected to bring relief on a large number of goods and services and stimulate the economy.
In the short term, though, it could mean a revenue gap to the exchequer, a central government official said on Friday.
As per the proposal, 99% of the products and services in the 12% slab will be shifted to 5% and most of the items in the current highest slab of 28% will be moved to the 18% slab.
The remaining few items in the 28% bracket will be moved to a new 40% slab, which will be an outlier, and cover only a few 'sin goods' such as tobacco products, the official said.
The proposal has been sent to a ministerial group and will be placed before the federal indirect tax body, the GST Council, by September or October.
As part of the restructure, existing tax anomalies will be corrected and refunds expedited, the official said.
Prime Minister Narendra Modi announced the GST restructuring during his Independence Day speech earlier in the day, describing it as a 'double Diwali' for people.
The revamp of the GST system will also see the expiry of the GST compensation cess currently levied on items like sports utility vehicles, tobacco and sugary drinks.
Given that many of the products and services currently in the 28% slab will move to 18%, it is likely to benefit the automobile sector, too. The official mentioned above declined to comment specifically on individual commodities or services.
The consumption stimulus follows a massive income tax relief offered to people in the Union Budget for 2025-26 and a 100-basis points reduction in the repo rate by the Reserve Bank of India since February to help support economic growth.
The finance ministry and the GST Council Secretariat did not immediately reply to queries emailed on Friday seeking comments.