India is preparing for what could be its most significant GST reform since the tax was first introduced in July 2017. The Goods and Services Tax (GST), launched as a “One Nation, One Tax” system, was meant to streamline indirect taxation and improve compliance. Yet, over the years, its multi-slab structure with rates of 5%, 12%, 18%, and 28% has often been criticized for creating confusion, disputes, and compliance challenges.
To address these issues, the government is now planning a simplified two-slab GST structure, retaining only the 5% and 18% rates, while reorganizing products from the 12% and 28% slabs. This revamp is expected to reduce compliance burdens, lower consumer prices, and make taxation more transparent.
Key Highlights of the New GST Structure
1. Only Two Standard Slabs Retained – 5% & 18%
The four-tier structure will be merged into two simplified slabs:
- 5% for essentials and mass-consumption goods (daily food items, packaged groceries, medicines, household necessities).
- 18% for standard goods and services (electronics, personal care items, restaurants, telecom services, etc.).
2. Items in the 12% Bracket Moving to 5%
Almost 99% of goods and services in the 12% category will shift down to 5%. This means packaged food, beverages, footwear, and many consumer services will get cheaper.
3. Items in the 28% Bracket Moving to 18%
Nearly 90% of items taxed at 28% such as automobiles, home appliances, and electronics will be moved to the 18% category. Only luxury and sin goods will stay outside this shift.
4. New 40% Special Rate for Luxury & Sin Goods
A separate 40% slab is being introduced for items like tobacco, pan masala, and luxury goods, with no cess on top. This eliminates double-layer taxation and increases transparency.
5. No Additional Cess
The removal of cess will make tax calculations easier for both businesses and consumers, reducing ambiguity and litigation.
Why This Reform Matters
For Consumers
- Lower tax on essentials and packaged foods → reduced household expenses.
- Automobiles and electronics taxed at lower rates → boost to affordability.
- Transparent tax regime → fewer hidden costs in billing.
For Businesses
- Simplified compliance: Only two slabs mean easier invoicing, accounting, and filing.
- Reduced classification disputes: No more confusion on whether an item falls under 12% or 18%.
- Cost savings: Lower legal disputes and reduced need for tax consultants.
For the Economy
- A short-term revenue dip (~₹50,000 crore) is expected, but increased consumption could offset it.
- Experts predict a 0.5–0.6% boost to GDP growth due to higher consumer spending.
- Simplification will enhance India’s Ease of Doing Business ranking, making it more attractive for foreign investment.
Industry-Wise Impact
- FMCG: Big relief as most packaged goods shift to 5%, leading to competitive pricing and stronger demand.
- Automobiles: Cars and two-wheelers moving to 18% could significantly lower prices, boosting sales.
- Electronics & Appliances: Household products will become cheaper, encouraging urban and rural demand.
- Hospitality & Services: Many services shifting to lower rates could revive consumption in tourism, restaurants, and entertainment.
- Luxury Goods & Tobacco: Higher rates (40%) will maintain government revenues while discouraging consumption of sin products.
Global Perspective on Simplified GST Systems
India’s shift towards a two-slab GST structure mirrors international best practices:
- Singapore: Operates on a single GST rate of 9%.
- Australia: Has one standard GST rate with few exemptions.
- Canada: A simple federal GST of 5% plus provincial variations.
These countries have shown that fewer slabs = better compliance + fewer disputes, something India has been striving for since 2017.
Timeline and Rollout
The government is aiming to introduce this simplified GST regime before Diwali, giving households a festive boost in purchasing power. Businesses, however, must start preparing in advance by:
- Reassessing pricing models to reflect lower tax rates.
- Updating contracts with suppliers and vendors.
- Configuring accounting and ERP systems to align with the new structure.
Summary of Rate Changes
| Current Rate | Proposed Rate | Items Affected |
| 5% | 5% (retained) | Essentials & daily goods |
| 12% | 5% | 99% of packaged foods, footwear, consumer services |
| 18% | 18% (retained) | Standard goods/services |
| 28% | 18% (90% items) | Automobiles, electronics, appliances |
| 28%+Cess | 40% (special) | Tobacco, pan masala, luxury goods |
Conclusion
The two-slab GST regime has the potential to be a game-changer for India’s economy. By reducing complexity, improving compliance, and cutting costs for both businesses and consumers, it represents a step closer to the original vision of GST: One Nation, One Tax.
While concerns about revenue shortfalls and sectoral adjustments remain, the long-term benefits of simplification, transparency, and growth make this reform a welcome move. If rolled out smoothly, the new system could mark a turning point in India’s taxation history.
FAQs
Q1. What is the proposed two-slab GST system?
The government plans to replace the current four-slab GST structure (5%, 12%, 18%, 28%) with just two standard rates – 5% for essentials and 18% for standard goods and services. Luxury and sin goods will be taxed at a special 40% rate.
Q2. Which items will get cheaper under the new GST regime?
Goods currently taxed at 12% such as packaged foods, footwear, and many consumer services will move to the 5% slab, making them cheaper for consumers.
Q3. What will happen to goods currently in the 28% bracket?
Nearly 90% of items in the 28% category like automobiles, home appliances, and electronics will shift to the 18% slab, leading to price reductions in these sectors.
Q4. How will this reform benefit businesses?
With fewer tax slabs, businesses will face simpler invoicing, reduced classification disputes, and easier compliance. This will also lower administrative costs and save time.
Q5. Will the government lose revenue with fewer slabs?
In the short term, a revenue dip of about ₹50,000 crore is expected. However, higher consumption and broader compliance are projected to offset this loss, potentially adding 0.5 – 0.6% to GDP growth.
