GST Revolution Unveiled: Two Slabs to Transform India

India is poised for a groundbreaking economic transformation with the introduction of 'Next Gen GST,' a streamlined tax regime featuring just two slabs—5% and 18%—designed to lower costs, boost consumption, and counter global tariff pressures, government sources revealed.

The proposed reform, which awaits approval from the GST Council, will replace the existing four-slab structure, eliminating the 12% and 28% brackets. A senior official, speaking anonymously, hailed it as a "game-changer" in India's economic reform landscape, emphasizing its focus on affordability and growth.

Under the new system, nearly all everyday items, including butter, fruit juices, and dry fruits, will shift to the 5% slab, while high-value goods like ACs, TVs, fridges, and cement will move from 28% to 18%. A 40% rate will apply to sin goods, ensuring a balanced approach.

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"Lower taxes will put more money in people’s pockets, driving consumption," the official stated. The reform, dubbed a "reformed and refined GST," aims for long-term stability, especially as the Compensation Cess nears its end. The structure has been meticulously crafted over six months to prevent input tax credit accumulation and minimize future rate adjustments.

The proposal prioritizes the needs of the middle class, farmers, and MSMEs, with item-by-item evaluations ensuring essentials like pencils and pesticides fall into the 5% slab. "We’ve scrutinized every product, sometimes revisiting decisions multiple times," the official added.

The reform aligns with India’s long-term vision of a single tax slab, suitable for a developed nation with uniform income levels. "A single rate is the ultimate goal, but the timing isn’t right yet," the official noted.

The overhaul comes amid external pressures, including US President Donald Trump’s 25% tariff on Indian exports like gems, textiles, and footwear, set to double to 50% from August 27, impacting USD 40 billion in trade. Prime Minister Narendra Modi’s recent call for self-reliance underscores the reform’s timely relevance.

The proposal will now go to a Group of Ministers for review before reaching the GST Council, chaired by the Union Finance Minister, for a final decision next month. While shifting items like packaged food and apparel from 12% to 5% may reduce revenue initially, officials are confident that increased consumption will offset losses within months.

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