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Informist, Friday, Aug. 15, 2025

 

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--Govt source: Proposed GST reforms to give big boost to GDP, consumption 
--Govt source: Expect GST reforms to be implemented by FY26-end 
--Govt source: Expect GST Council to meet in September or October 
--Govt source: Expect GST rate-rationalisation panel to meet in coming weeks 
--Govt source: Proposed 40% tax on few sin goods under GST reforms 
--Govt source: Proposed nil or 5% tax on common-use items under GST reforms 
--Govt source: Proposed continuing with 5%, 18% slabs under GST reforms 
--Govt source: Proposed removing 12% slab to GST rate-rationalisation panel 
--Govt source: Proposed scrapping 28% slab to GST rate-rationalisation panel

 

NEW DELHI – The Centre has proposed continuing with the 5% and the 18% tax slabs under the goods and services tax in its recommendations to the rate rationalisation panel constituted by the GST Council, a senior government source said. In its recommendation to the Group of Ministers reviewing the GST rate structure, the government also suggested doing away with the 12% and the 28% tax slabs, the source said.

 

The Centre has proposed bringing 99% items under the 12% tax slab to the 5% slab while some items may be put under the 18% slab, the source said. Almost 90% items from the 28% tax slab will go to the 18% tax slab, the source said. Currently, 65% of the total GST revenue comes from items falling under 18% tax slab and 11% revenue is collected from items under 28% slab. Only 7% and 5% GST is collected from items under 5% and 12% tax slabs, respectively, the source added.

 

"The Central government has sent its proposal on GST rate rationalisation and reforms to the Group of Ministers constituted by the GST Council to examine this issue," the finance ministry had said earlier on Friday. The ministry suggested moving towards a simple tax with two slabs--standard and merit, according to a government release.

 

A six-member Group of Ministers was tasked to recommend trimming the list of items exempt from GST, reassess tax rates, and correct the inverted duty structures. The Group of Ministers on rate rationalisation is headed by Bihar Deputy Chief Minister Samrat Choudhary. Kerala Finance Minister K.N. Balagopal, Uttar Pradesh Finance Minister Suresh Kumar Khanna, Karnataka Revenue Minister Krishna Byre Gowda, West Bengal Finance Minister Chandrima Bhattacharya, and Rajasthan Medical and Health Services Minister Gajendra Singh are the other members.

 

The proposals come at a time when the compensation cess under GST is nearing its end. The source said that the compensation cess will not be collected once the GST-related loans are repaid. The compensation cess, which was introduced to compensate states for revenue losses in the initial years of the GST regime, is due to end in March 2026. However, there is a possibility that the dues are repaid few months prior, the source said.

 

The compensation cess on certain luxury and sin items such as tobacco items, motor vehicles, expensive motorcycles, caffeinated beverages and aerated drinks was introduced in 2017 to compensate states for the potential revenue losses in the first five years of the new GST regime.

The Centre has also proposed nil or 5% tax on common-use items like food, medicine, and education under GST reforms, the source said. There would be another lower rate, closer to 0.1%, for items that generate large-scale job opportunities. While, another tax rate of 40% is proposed for 5-7 sin goods, the source said, adding that the overall tax incidence on tobacco and pan masala may remain the same with an additional levy over and above 40% tax.

 

The proposed changes are expected to boost consumption as prices of many items may come down and spur growth in the economy. The source said the revenue hit because of the proposed changes may be offset within few months of implementation. The sectors that stand to gain the most from these reforms are agriculture, textile, fertiliser, renewable energy, automotive, handicrafts, healthcare and insurance, according to the government source.

 

The next step will be for the six-member group of ministers to meet and deliberate on the matter in the next few weeks. After which the GST Councill may take the matter in its next meeting in September or October, the source said. The Centre expects the revamped GST regime to come into effect before the end of 2025-26 (Apr-Mar).

 

GST collections in the first four months of 2025-26 (Apr-Mar) grew 10.7% on year to INR 8.181 trillion, slightly lower than the 10.9% growth projected in the Budget.  End

 

Reported by Sagar Sen

Edited by Akul Nishant Akhoury

 

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