The long-awaited revamp of India's Goods and Services Tax (GST) has taken a step closer, with the Group of Ministers (GoM) on GST rate rationalisation agreeing to reduce the number of slabs. In a key meeting on Thursday, the panel of state ministers approved the Centre's plan to reduce the four-rate system to two main slabs of 5% and 18%.
The move marks the start of what is known as GST 2.0, which aims to make the tax system simpler, easier to understand, and less burdensome for consumers and businesses.
Two Slabs To Replace Four
Currently, GST is charged at four different rates: 5%, 12%, 18%, and 28%. Under the new structure, the 12% and 28% slabs will be removed. Goods and services will now be mostly under 5%, or 18%.
A 40% levy on a limited list of "sin goods" such as tobacco and certain luxury items will remain in place. The panel also recommended that luxury cars be taxed at 40%. According to the plan, 99% of items previously taxed at 12% will be moved to the lower 5% slab. Similarly, nearly 90% of items in the 28% category will drop to 18%.
Who was involved in the decision?
Samrat Choudhary, Bihar's Deputy Chief Minister, chaired the GoM. Other members 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 ministers reached a broad agreement after reviewing the Finance Ministry's detailed proposals.
Impact On Consumers
The Centre claims that the new structure will benefit households, farmers, and the middle class by lowering the GST rate on everyday items. Medicines, processed food, clothing, footwear, and a variety of household products are expected to fall into the 5% category.
Large household appliances, televisions, and other durable goods will now be taxed at 18% rather than 28%, potentially lowering prices for middle-class families.
Finance Minister Nirmala Sitharaman previously 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."
GST Exemption for Insurance is Under Review
The GoM also discussed the Centre's plan to exempt individuals from paying GST on health and life insurance. If approved, policyholders will no longer have to pay GST on their premiums.
Officials estimate that such an exemption would reduce government revenues by approximately Rs 9,700 crore per year. While most states supported the idea, they also requested a mechanism to ensure that insurers actually pass on the benefit to customers rather than keeping premiums constant.
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What happens next?
The GoM's recommendations will now be sent to the GST Council, which is chaired by the Union Finance Minister and comprises representatives from all states.
If approved, the changes will be one of the most significant reforms since GST was introduced in 2017. The government believes that the simpler two-slab system will make compliance easier for businesses while also reducing the tax burden on consumers.
