New Delhi – The Finance Ministry has submitted a proposal to the GST Council recommending the introduction of just two GST rates — 5% and 18% — for all goods, government sources said on Friday.
Under the plan, essential goods such as agricultural products, healthcare-related items, handicrafts, and insurance services would fall under the lower 5% slab. Most other goods, including manufactured products, would be taxed at 18%.
However, so-called “sin goods” — including cigarettes, tobacco, sugary drinks, and pan masala — would continue to attract the current higher tax rates.
The government believes that rationalising GST rates in this manner will stimulate consumption and drive economic growth. The GST Council, which includes state finance ministers, is expected to meet in September to discuss and potentially approve the proposal.
This move follows Prime Minister Narendra Modi’s Independence Day speech in which he promised “next-generation” GST reforms by Diwali, aimed at providing substantial tax relief for ordinary citizens and benefits for small businesses.
The proposed reforms focus on:
- Rationalising rates to benefit all sections of society, especially the common man, women, students, the middle class, and farmers.
- Cutting taxes on everyday and aspirational goods to improve affordability and boost consumption.
- Using the fiscal space created by the end of the compensation cess to align tax rates for long-term stability.
- Correcting inverted duty structures to prevent excessive input tax credit accumulation and promote domestic value addition.
- Resolving classification disputes, simplifying compliance, and ensuring greater fairness across sectors.
According to the ministry, these measures would also provide long-term clarity on tax rates, helping industry plan better and boosting investor confidence.
In his address, PM Modi announced the formation of a high-level task force to lead wide-ranging reforms in governance, taxation, and public service delivery.
“This Diwali, I will celebrate a double Diwali with you. The people of this country will receive a big gift — there will be a significant cut in GST on common household items,” he said, calling the review of GST rates “the need of the hour.”
The announcement coincides with GST’s eighth anniversary. Since its rollout in 2017, GST has become one of India’s most important post-independence tax reforms, unifying the indirect tax system and greatly improving the ease of doing business, particularly for small and medium enterprises.
With inputs from IANS