On Friday, the Finance Ministry proposed a simplified two-slab GST rate structure to the Group of Ministers (GoM), with special rates for select items. Prime Minister Narendra Modi, in his 79th Independence Day address, announced that the reforms, aimed at substantially reducing the tax burden and benefiting small industries, will be implemented by Diwali.
The ministry said the proposal focuses on three key pillars: structural reforms, rate rationalisation, and ease of living. It includes a reduction in taxes on everyday items and aspirational goods, enhancing affordability and boosting consumption.
Currently, GST has four slabs of 5%, 12%, 18%, and 28%. Under the new plan, the system would move towards a two-slab model: standard and merit, with special rates applying only to a few items. The GST Council, chaired by Finance Minister Nirmala Sitharaman, is expected to discuss the proposal in September.
The end of the compensation cess has created fiscal space, enabling greater flexibility to rationalise and align tax rates for long-term sustainability. Other key measures include:
Inverted duty structure correction to reduce input tax credit accumulation and support domestic value addition.
Resolving classification issues to streamline rates, simplify compliance, and ensure consistency across sectors.
Stability and predictability in tax rates to boost business confidence.
Technology-driven processes for registration, pre-filled returns, and faster automated refunds, especially for small businesses and exporters.
FICCI praised the announcement, highlighting that it would reduce the tax burden, enhance ease of doing business, and strengthen India’s position as a global manufacturing hub.
GST, now over eight years old, has become more than a tax system—it serves as a macroeconomic indicator. Gross GST collections reached a record ₹22.08 lakh crore in 2024-25, reflecting improved compliance and economic formalisation.