India's GST regime may soon undergo its most significant overhaul since its inception, with the Prime Minister's Office reportedly giving preliminary approval for a revamp that could reshape tax slabs and streamline procedures.

The proposal, which is expected to be considered by the GST Council following the monsoon session of Parliament in August, includes a potential recast of rate structures as well as procedural simplifications aimed at making compliance easier for both businesses and consumers.

Key Highlights

• PMO gives in‑principle approval for most significant GST overhaul since 2017; simplified slabs under study.
• Council may eliminate the 12% tax slab, moving goods into 5% or 18% brackets for simplicity.

After years of industry group pressure and bipartisan calls from lawmakers to address long-standing problems with the current GST framework, the overhaul has been in the works for months. Five main tax slabs—nil, 5%, 12%, 18%, and 28%—as well as two extra rates of 0.25% and 3% for bullion make up the current structure.

The removal of the 12% slab is one important proposal being considered; items that are currently in that category will probably be reclassified as 5% or 18% slabs instead. At the moment, roughly 21% of all goods subject to GST are covered by the 5% slab, whereas 19% and 44% are covered by the 12% and 18% slabs, respectively. The 28% tax applies to only 3% of goods, primarily those classified as sin goods such as cigarettes and luxury automobiles.

Also Read: GST Revenue Growth Slows in June with Net Collections Rising Just 3.3%

In an effort to come to a political agreement, the finance ministry has started interministerial consultations and will speak with states. The broader economic environment, which is marked by tax stability and solid macroeconomic fundamentals, may give the required impetus to the rate rationalization effort, although a ministerial panel assigned to the task has made little headway.

The government is also considering this move in light of ongoing free trade negotiations with developed nations, with the goal of keeping domestic industries competitive as new trade opportunities arise. During the monsoon session, there will also be a parallel effort to revamp the income tax framework.

A separate ministerial panel is evaluating the future use of the compensation cess fund, which remains in place until March 2026 to repay the ₹2.69 lakh crore borrowed by the Centre during the Covid period on behalf of the states.

If approved, the proposed changes would be the first major recalibration of GST since its implementation in July 2017.