GST Reform 2025: A Major Tax Overhaul on the Horizon
India is considering a significant restructuring of its Goods and Services Tax (GST) system, aiming to simplify the current four-slab structure into just two main rates: 5% and 18%. If approved by the GST Council, this would be the most substantial change to the tax framework since it was launched in 2017.
What’s Changing?
The new plan is designed to ease the financial burden on households and businesses while making the tax system more straightforward.
- 12% and 28% Slabs to be Scrapped: Most goods currently in the 12% slab, including many household essentials, would drop to 5%. Similarly, about 90% of items from the 28% bracket, such as televisions, air conditioners, and other consumer durables, would move down to 18%.
- New 40% Rate for “Sin” Goods: A steep 40% levy is proposed for demerit and luxury items like online gaming and tobacco, replacing the current 28% rate and any additional cess.
- Essentials Remain Low: Products critical for everyday life, including food, medicines, and educational services, would remain at 5% or be exempt. This change is also expected to benefit farmers, as taxes on equipment like sprinklers and farm machinery could fall from 12% to 5%.
- Special Categories Unchanged: Items like diamonds (0.25%) and gold (3%) will keep their special rates, while petroleum products will continue to stay outside the GST framework.
Why the Change?
This reform seeks to make India’s indirect tax system simpler and more equitable. By rationalizing rates, the government hopes to ease compliance for businesses, lower costs for consumers, and reduce inflationary pressures.
The proposal has been submitted to a few key groups of ministers for review. Their recommendations will then go to the GST Council, which could vote on the plan as early as September or October. If it passes, the new system could be in place just in time for the festive season.