Senior government officials on Saturday described the upcoming GST reform as a “game changer”, saying it will replace the current four-tier structure with two tax rates of 5% and 18%. A special rate of 40% is planned for luxury and demerit goods such as tobacco and pan masala.
Officials explained that this “Next Gen GST” is not just about reducing the number of slabs. They said the reform is designed to strengthen the economy, lower tariffs on many items, and eventually create a path towards a single national tax rate by 2047, as reported by PTI.
A Diwali announcement
In his 79th Independence Day address, Prime Minister Narendra Modi said, “This Diwali, I am going to make it a double Diwali for you... Over the past eight years, we have undertaken a major reform in GST... We are bringing next-generation GST reforms. This will reduce the tax burden across the country.”
He added, “Tax rates on essential goods and daily needs will be reduced under a simplified framework. This will bring significant relief and convenience. Our MSMEs and small industries will also benefit greatly from these changes.”
The Prime Minister described the revision as a gift that would ease costs for households and businesses.
New GST reforms: What gets cheaper and what does not
According to government sources quoted by PTI, nearly 90% of items currently in the 28% slab will move to 18%. Almost all goods from the 12% category will shift to 5%. Everyday products such as household items and essentials are expected to fall under the lower 5% slab.
The 40% rate will apply only to seven products, including tobacco and pan masala. Even so, the overall tax burden on tobacco will remain unchanged at 88%. Diamonds and precious stones, important for exports, will retain their current rates. Petroleum will continue to remain outside the GST net.
GST was introduced on 1 July 2017, merging multiple state and central taxes into a single nationwide system. The current structure has four main slabs of 5%, 12%, 18% and 28%. Essential food items are exempt or charged at the lowest rate, while luxury and sin goods fall into the highest category.
Revenue data shows that the 18% slab is the backbone of the system, accounting for about 65% of collections. The 28% rate contributes 11%, the 12% rate just 5%, and the 5% slab about 7%. A compensation cess is levied on demerit goods, which is due to expire in March 2026. The Council will need to decide how such goods are taxed once the cess ends.
The finance ministry has said that the revamp is aimed at bringing “long-term clarity on rates and policy direction”. Officials believe the two-slab system will reduce disputes over classification, address inverted duty structures, and give businesses more predictability.
On the compliance side, reforms include technology-based registration, pre-filled returns, and faster refunds for exporters. These measures, the ministry said, will improve both ease of living and ease of doing business.
The GST Council, chaired by Finance Minister Nirmala Sitharaman, is expected to take up the proposal in September. The plan has already been presented to the Group of Ministers on rate rationalisation, headed by Bihar Deputy Chief Minister Samrat Chaudhary.
The finance ministry underlined that consensus with states will be central to the rollout. “In the upcoming weeks, it will work towards building a broad consensus with the states to implement the next wave of reforms,” it said.
If approved, the new GST structure could be in place before Diwali, offering what the Prime Minister has called a “double Diwali” for Indian consumers.
Officials explained that this “Next Gen GST” is not just about reducing the number of slabs. They said the reform is designed to strengthen the economy, lower tariffs on many items, and eventually create a path towards a single national tax rate by 2047, as reported by PTI.
A Diwali announcement
In his 79th Independence Day address, Prime Minister Narendra Modi said, “This Diwali, I am going to make it a double Diwali for you... Over the past eight years, we have undertaken a major reform in GST... We are bringing next-generation GST reforms. This will reduce the tax burden across the country.”
He added, “Tax rates on essential goods and daily needs will be reduced under a simplified framework. This will bring significant relief and convenience. Our MSMEs and small industries will also benefit greatly from these changes.”
The Prime Minister described the revision as a gift that would ease costs for households and businesses.
New GST reforms: What gets cheaper and what does not
According to government sources quoted by PTI, nearly 90% of items currently in the 28% slab will move to 18%. Almost all goods from the 12% category will shift to 5%. Everyday products such as household items and essentials are expected to fall under the lower 5% slab.
The 40% rate will apply only to seven products, including tobacco and pan masala. Even so, the overall tax burden on tobacco will remain unchanged at 88%. Diamonds and precious stones, important for exports, will retain their current rates. Petroleum will continue to remain outside the GST net.
GST was introduced on 1 July 2017, merging multiple state and central taxes into a single nationwide system. The current structure has four main slabs of 5%, 12%, 18% and 28%. Essential food items are exempt or charged at the lowest rate, while luxury and sin goods fall into the highest category.
Revenue data shows that the 18% slab is the backbone of the system, accounting for about 65% of collections. The 28% rate contributes 11%, the 12% rate just 5%, and the 5% slab about 7%. A compensation cess is levied on demerit goods, which is due to expire in March 2026. The Council will need to decide how such goods are taxed once the cess ends.
The finance ministry has said that the revamp is aimed at bringing “long-term clarity on rates and policy direction”. Officials believe the two-slab system will reduce disputes over classification, address inverted duty structures, and give businesses more predictability.
On the compliance side, reforms include technology-based registration, pre-filled returns, and faster refunds for exporters. These measures, the ministry said, will improve both ease of living and ease of doing business.
The GST Council, chaired by Finance Minister Nirmala Sitharaman, is expected to take up the proposal in September. The plan has already been presented to the Group of Ministers on rate rationalisation, headed by Bihar Deputy Chief Minister Samrat Chaudhary.
The finance ministry underlined that consensus with states will be central to the rollout. “In the upcoming weeks, it will work towards building a broad consensus with the states to implement the next wave of reforms,” it said.
If approved, the new GST structure could be in place before Diwali, offering what the Prime Minister has called a “double Diwali” for Indian consumers.
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