GST Council may take up removal of 12% rate

Hindustan Times

a day ago

The GST Council could discuss, at its next meeting, a proposal to rationalise Goods and Services Tax (GST) rates by reducing the number of slabs from the current four to three by removing the 12% tax slab, people familiar with the matter said, asking not to be named.
There is a 'near consensus' among officials and experts advising the Group of Ministers (GoM) discussing rate rationalisation that the 12% slab has little continued relevance, and essential items used by common people could be placed in preceding slab of 5% and rest could be shifted to the next 18% slab, the people added.
'This could be the most plausible way to undertake a revenue neutral tax rate rationalisation exercise. However, the GST Council has to take a final call,' one of the people said.
The GST Council, which is the apex decision-making body on indirect tax regime, is expected to meet either in June-end or July. The body, comprising the Union finance minister and finance ministers (or senior ministers) of states, has not met since December 2024 and will likely consider proposals related to the rate rationalisation along with other issues, including further ease of compliance, the people cited above said.
The GoM on rate rationalisation was first constituted on September 24, 2021 as per the decision of the 45th GST Council meeting held in Lucknow with the mandate of rate rationalisation, simplification of tax structure and correcting duty inversions. At first ,its convener was former Karnataka CM Basavaraj S Bommai. Later, in November 2023, the convenorship went to UP finance minister Suresh Kumar Khanna. After that Bihar deputy CM Samrat Chaudhary became its convener on February 27, 2024.
The decision to do away with the 12% slab is endorsed by most Union and state government officials, experts and GoM representatives , the first person added.
Currently, India has a four-slab GST regime – 5%, 12%, 18% and 28%, broadly following the principle of lower tax on necessities and higher tax on luxury items. The poor are protected with zero tax on essentials such as unpacked food items, salt, milk, fresh vegetables, educational and health services.
The 12% tax slab includes items such as condensed milk, caviar and caviar substitutes prepared from fish eggs, drinking water packed in 20 litre bottles, walkie talkies, tanks and other armoured fighting vehicles, contact lenses, cheese, dates and dried fruits, frozen vegetables, sausages and similar meat products, pasta, jams and jellies, fruit juice-based drinks, namkeens including bhujiya, curry paste, mayonnaise, tooth powder, feeding bottles, carpets, umbrellas, caps, bicycles, specific household utensils, furniture made of cane or wood, pencils and crayons, handbags and shopping bags made of jute or cotton, footwear priced lower than ₹1,000, diagnostic kits, and marble and granite blocks.
Services attracting 12% GST include specified construction work,hotel rooms up to ₹7,500 per day, transport of passengers by air —with or without accompanied belongings -- in non- economy classes, certain types of multimodal transportation, and specific professional, technical and business services.
Experts welcomed the idea of scrapping the 12% slab.
Saurabh Agarwal, tax partner at consultancy firm EY India said: 'The upcoming GST Council meeting will focus on rate rationalisation, with indications that the Council may eliminate the 12% slab in favour of a simplified three-rate GST structure. This change could enhance compliance, reduce classification disputes, and improve efficiency.'
Agarwal added that the exercise will require balance, because revenue neutrality (the changes not having any impact on the overall tax revenue) is key.
'Revenue neutrality is essential, as the 12% slab currently includes mass-consumption goods and industrial inputs. Transitioning these to the 5% or 18% slabs will have varied revenue implications, requiring careful assessment to maintain accessibility. The inflationary impact is also a concern. Moving items from the 12% to the 18% slab could raise costs for semi-essential goods, potentially burdening consumers. A phased approach is necessary to mitigate price increases.'
Additionally, classification challenges may arise during the transition, leading to interpretational issues for businesses, Agarwal said. 'Clear guidelines will be crucial to ensure a smooth shift. Aligning with global practices, many advanced GST/VAT regimes use one or two standard rates. Thus, adopting a three-rate structure would bring India closer to these standards while allowing for socio-economic flexibility,' he said. 'In summary, while a simplified GST structure is promising, its success will depend on careful design and stakeholder consultation.'
According to experts, continued growth in gross GST revenues supports the need for rate rationalisation. Gross GST revenues saw over 9% jump to ₹22,08,861 crore in 2024-25 as compared to ₹20,18,249 crore in 2023-24. The new financial year saw record collection in the month of April this year at ₹2,36,716 crore. The revenue in the next month (May 2025) also was the third highest ever at ₹2,01,050 crore.