India’s long-awaited overhaul of the Goods and Services Tax (GST) system moved closer to reality on Thursday, with the Group of Ministers (GoM) on GST rate rationalisation agreeing to cut the number of tax slabs from four to two.
The GoM, chaired by Bihar Deputy Chief Minister Samrat Choudhary, accepted the Centre’s proposal to replace the current structure of 5%, 12%, 18% and 28% with two primary slabs of 5% and 18%.
Under the new framework, the 12% and 28% slabs will be scrapped. Most goods and services will now be taxed either at 5% or 18%. A higher 40% levy will remain applicable on “sin goods” such as tobacco and certain luxury items, with luxury cars also set to fall under this bracket.
According to the plan, 99% of items previously under the 12% category will shift down to 5%, while nearly 90% of items from the 28% slab will move to 18%. The changes aim to make the tax system simpler, easier to follow, and less burdensome for both households and businesses.
Relief for Households and Consumers
The Centre has highlighted that GST 2.0 will bring direct benefits to consumers. Medicines, processed food, clothing, footwear, and several household essentials are expected to fall into the lower 5% slab. Larger household appliances, televisions, and other durable goods will move from 28% to 18%, potentially reducing prices for middle-class families.
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Finance Minister Nirmala Sitharaman earlier said, “The rate rationalisation will provide greater relief to the common man, farmers, the middle class and MSMEs, while ensuring a simplified, transparent and growth-oriented tax regime.”
GST Exemption for Insurance Under Review
The GoM also discussed a proposal to exempt health and life insurance premiums from GST. If implemented, this would reduce costs for policyholders, though officials estimate the government could lose around ₹9,700 crore annually in revenue. States have asked for mechanisms to ensure insurers pass on the benefit to customers.
The GoM’s recommendations will now be sent to the GST Council, chaired by the Union Finance Minister, which will review the proposals in its upcoming meeting. If cleared, this would mark one of the most significant reforms since GST was first introduced in 2017.
