The GST Council is set to shake up India’s tax structure by potentially eliminating the 12% tax slab, reducing the total number of major slabs from four to three. This significant move, aimed at simplifying the Goods and Services Tax (GST) framework, is expected to be discussed at the Council’s meeting in late June or July 2025.
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Currently, India operates with four main GST slabs: 5%, 12%, 18%, and 28%. The proposed change would likely see items from the 12% slab redistributed into either the 5% or 18% slab. Officials are reportedly nearing a consensus that the 12% slab has limited utility, making its removal a logical step towards a more streamlined system. This rationalization is also being considered as GST collections have consistently remained strong, instilling confidence in the Council to make such a substantial change.
What Could Get Cheaper?
The good news for consumers is that “essential items used by common people” currently taxed at 12% are strong candidates to be moved to the lower 5% slab. While the final list is pending the Council’s decision, this could potentially include:
- Certain food products: Items like condensed milk, cheese, dates, dried fruits, and frozen vegetables.
- Everyday household goods: The aim is to provide relief on necessities, so some common household items might also see a tax cut.
- Select medical and pharmaceutical products: There’s a historical push to reduce taxes on these crucial items.
What Could Get Pricier?
Conversely, items currently in the 12% slab that are considered less essential or capable of absorbing a slightly higher tax are likely to be shifted to the 18% slab. This could impact:
- Various services: This includes specific construction work, hotel rooms above a certain price point, air travel in non-economy classes, and certain professional or technical services.
- Other goods: Examples might include large packaged drinking water bottles, specialized communication devices like walkie-talkies, and perhaps some processed food items.
The Bigger Picture
This potential change is more than just about shifting percentages; it’s about making GST simpler and more efficient. However, the Council will also be aiming for “revenue neutrality”, meaning any revenue loss from reducing taxes on some items would need to be balanced by increased taxes on others. This delicate balancing act will determine the overall impact on inflation and consumer spending. Businesses will also be keenly awaiting clear guidelines to ensure a smooth transition.
The final outcome will only be clear after the GST Council’s meeting.
