As Finance Minister Nirmala Sitharaman chairs the ongoing 56th GST Council meeting, a bold plan to revolutionize India’s Goods and Services Tax framework is taking shape, promising significant relief for consumers and businesses alike. The proposed rationalization, which began deliberations today, aims to simplify the current four-tier tax structure—5, 12, 18, and 28 percent—by eliminating the 12 and 28 percent slabs, retaining only the 5 and 18 percent categories. This move, hailed by Prime Minister Narendra Modi as an “early Diwali gift” in his Independence Day address, is designed to streamline the tax system based on eight years of revenue data.
Analysis reveals stark disparities in tax collection: the 18 percent slab has contributed a whopping 67 percent of the total GST revenue over the past eight years, while the 12 percent slab lags at a mere 5 percent. The 5 and 28 percent slabs account for 7 and 11 percent respectively. The Group of Ministers (GoM) recommends scrapping the 12 percent slab due to its negligible yield and the 28 percent slab to encourage price cuts on luxury goods, which include aspirational items like automobiles and electronics favored by India’s price-sensitive middle class. Lowering these to 18 percent is expected to boost sales, offsetting manufacturers’ concerns about profit margins and potentially creating jobs in labor-intensive sectors.
The decision also addresses misclassifications, as goods like cement and paint—vital for the struggling housing sector—have been unfairly taxed at 28 percent despite not being luxuries. With the 5 and 18 percent slabs already generating 74 percent of the Rs 11.37 lakh crore collected in 2020/21, and gross collections hitting a record Rs 22.08 lakh crore in 2024/25 (up 9.4 percent year-on-year), the reform leverages robust data to enhance efficiency. August 2025 alone saw Rs 1.86 lakh crore in revenue, a 6.5 percent rise from last year.
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However, the overhaul faces resistance from non-BJP states like Tamil Nadu and West Bengal, which anticipate a Rs 50,000 crore revenue hit and are demanding compensation. These states, gearing up for elections next year, propose hiking taxes on “sin” goods to offset losses, a move the Centre hopes will be mitigated by increased consumption. Sitharaman emphasized on X that the reforms will ease compliance for small businesses, startups, MSMEs, and solo entrepreneurs, reducing paperwork and fostering growth.
Amid global challenges like the Ukraine and West Asia conflicts and Donald Trump’s 50 percent US tariff threat, the government sees this GST revamp as a lifeline. A recent SBI Research report suggests that, combined with income tax cuts, it could inject Rs 5.31 lakh crore into consumption—1.6 percent of GDP—boosting domestic demand for US-bound goods facing export hurdles. As the two-day meeting unfolds, the quest for consensus will shape India’s economic future.
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