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Informist, Monday, Aug. 18, 2025

 

NEW DELHI – Following Prime Minister Narendra Modi's speech on Independence Day in which he announced goods and services tax reforms by Diwali, three Groups of Ministers are scheduled to meet Wednesday-Thursday here to work on the proposals, two people aware of the development said Monday. The ministerial panel on health and life insurance will meet Wednesday, while the two Groups of Ministers on compensation cess and rate rationalisation will meet Thursday. The meetings will likely be held in Vigyan Bhawan, the people cited above said.

 

Prime Minister Modi on Friday said GST on regular-use items will be brought down significantly, which will help lower prices of such goods and also help domestic micro, small, and medium enterprises. The GST Council, the apex body looking into the indirect tax structure, has been deliberating over the issue of rate rationalisation and simplification of the tax structure over the last few years. GST rate rationalisation, the most-looked-forward item on the Council's agenda, was taken up in the December meeting but no decision was taken as all members were of the view that more details need to be worked out before rate changes can be announced. 

 

The finance ministry, in a post on X on Friday, said the Centre has sent its proposal on GST rate rationalisation and reforms to the Group of Ministers constituted by the GST Council to examine this issue. "Key areas identified for next-generation reforms include the rationalisation of tax rates to benefit all sections of society, especially the common man, women, students, middle class, and farmers. Reforms will also seek to reduce classification-related disputes, correcting inverted duty structures in specific sectors, ensuring greater rate stability, and further enhancing ease of doing business," the ministry said.

 

Bihar Deputy Chief Minister Samrat Choudhury heads the six-member Group of Ministers which is tasked with recommending trimming the list of items exempt from GST, reassessing tax rates, and correcting inverted duty structures. As part of their recommendations, the panel in the interim report had proposed rate tweaks on 148 items that could likely help the government raise an additional INR 220 billion per year. The proposed changes are aimed at raising taxes on luxury and sin goods on one hand and providing relief on essential items on the other.

 

The Centre has also proposed moving towards a simple tax structure with two slabs--standard and merit from the current structure of 5%, 12%, 18% and 28%. The proposal to merge 12% and 18% has been on the GST Council's table for a while. The end of compensation cess has created a fiscal space, providing greater flexibility to rationalise and align tax rates within the GST framework for long-term sustainability, the ministry had said on Friday.

 

This is where the ministerial panel on compensation cess comes in, headed by Minister of State for Finance Pankaj Chaudhary. 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 will be repaid a few months prior, leading to confusion over what would happen to the excess funds accumulated. This Group of Ministers is tasked with looking into this matter. 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 third ministerial panel on GST on health and life insurance has also been working on the proposal to slash GST on these two items to a lower tax bracket, but no consensus has been formed yet. Bihar Deputy Chief Minister Chaudhary heads this panel as well.  End

 

Reported by Priyasmita Dutta

Edited by Tanima Banerjee

 

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