Centre Proposes Reducing GST Slabs From 4 To 2, May Retain 5%, 18%: Sources

The Centre has proposed that only two slabs for Goods and Services Tax (GST) be retained - 5 per cent and 18 percent - as per sources.

Under this proposal, 90 per cent of the items in the 28 per cent will be moved to the 18 per cent slab, while 99 per cent of the items in the 12 per cent slab will be moved to the five per cent slab, the sources added.

A special 40 per cent rate will apply to luxury and sin goods, which include tobacco, gutkha and cigarettes. The 40 per cent category will have just 5-7 items, according to the government sources, but will exclude aspirational items like refrigerator, air conditioner and washing machine. Further, petroleum products will continue to remain outside the GST regime even in revamped indirect tax structure.

High labour-intensive and export-oriented sectors like diamonds and precious stones would continue to be taxed as per the existing rates.

The total incidence of taxation will remain at the current level of 88 per cent. Sources said that the proposed GST revamp is expected to give consumption a big boost, which will offset revenue loss due to rate rationalisation.

The proposal was based on Union Finance Ministry data that stated that 67 per cent of the total GST revenue comes from products in the 18 per cent Slab, while 11, five and seven per cent come from the 28 per cent, 12 per cent and five per cent slabs respectively.

The proposed GST revamp comes hours after Prime Minister Narendra Modi said during the Independence Day address that GST reforms will be brought for "double Diwali". Key areas identified for next-generation reforms include the rationalisation of tax rates to benefit all sections of society, especially the common man, women, students, middle class, and farmers.

This was apart from other significant announcements like a national deep water exploration mission for self-reliance in energy and an indigenous "Sudarshan Chakra" defence system by 2035.

The GST Council, which includes finance ministers of states, is likely to meet in September or October to approve the proposal.

The announcement comes as GST marks its eighth anniversary, having evolved into one of India's most significant post-independence tax reforms. Since its launch in 2017, GST has unified the country's indirect tax structure and significantly improved the ease of doing business, especially for small and medium enterprises.