The Goods and Services Tax (GST) Council, chaired by Finance Minister Nirmala Sitharaman, convened today to deliberate a transformative shift to a two-slab tax structure aimed at reducing prices of daily-use items and boosting middle-class consumption. The proposed system, hailed by Prime Minister Narendra Modi as a "next-generation" reform, will streamline the current four-tier GST rates—5, 12, 18, and 28 percent—into a simpler 5 and 18 percent structure, with a special 40 percent "sin tax" on luxury goods like tobacco and high-end automobiles.

Under the new framework, 90 percent of goods currently taxed at 28 percent will move to the 18 percent bracket, while many daily essentials will drop from 12 percent to 5 percent. This rationalization is expected to spur consumption, particularly among the middle class, and offset an estimated Rs 50,000 crore revenue loss. The move aligns with India’s goal of becoming a self-reliant, "aatmanirbhar" economy while aiming to maintain its trajectory toward becoming the world’s third-largest economy.

The reforms are also seen as a strategic response to global economic pressures, including Donald Trump’s proposed 50 percent tariff on $48 billion worth of Indian exports to the US, which could impact Indian businesses and jobs. A recent SBI Research report projects that these GST changes, combined with recent income tax cuts, could boost consumption by Rs 5.31 lakh crore, equivalent to 1.6 percent of GDP. This follows a robust 7.8 percent GDP growth in the first quarter of FY26, surpassing earlier estimates of 6.5 percent, earning praise from global ratings agency Standard and Poor.

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However, the proposed changes have sparked concerns among opposition-ruled states like Tamil Nadu, Punjab, and West Bengal, which fear significant revenue losses. Eight state finance ministers are set to present their concerns at the council meeting, advocating for an additional duty on sin and luxury goods to ensure revenue neutrality. They propose redistributing these proceeds to states to offset losses, a suggestion that has gained traction amid debates over balancing fiscal stability with consumer relief.

The GST Council is also discussing compensation cess and health and life insurance reforms, aiming to simplify compliance and enhance ease of living. As discussions continue, the government remains optimistic that the overhaul will drive economic growth while addressing the needs of both consumers and states.

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