Prime Minister Narendra Modi’s persistent nudge to Finance Minister Nirmala Sitharaman has led to the most significant overhaul of the Goods and Services Tax (GST) regime in its eight-year history. What began as a casual remark last December—“Ek baar aap GST dekh lo!” (Please look at the GST regime)—has culminated in a simplified tax structure, lower rates, and streamlined compliance, promising relief for businesses and consumers alike.
The seeds of this reform were sown when Modi, during a discussion on the 2025-26 Budget, reiterated his call for action, asking Sitharaman, “Aap GST ke upar kar rahi ho na kaam?” (You are working on GST, right?). This prompted the Finance Minister to launch a comprehensive review of the GST framework, focusing not only on tax rates but also on easing the burden on businesses, particularly small and medium enterprises (SMEs). In an exclusive interview with PTI, Sitharaman revealed the extensive efforts behind the scenes, from addressing rate disparities to upgrading backend software to support the changes.
The overhaul tackled long-standing issues in the GST’s four-tier structure, which had created confusion with varying tax rates for similar products—like salted popcorn taxed differently from caramel popcorn or cream buns attracting higher rates than their individual components. “Since February 1, 2025, we conducted an in-depth study and review until mid-May,” Sitharaman said. She presented an initial proposal to Modi in May, seeking his feedback before refining it further.
Also Read: India-France Leaders Push for Peace in Ukraine Conflict
The proposal was then submitted to the GST Council, a body chaired by Sitharaman and comprising representatives from all states and Union Territories. The Centre, as a one-third partner in the Council, proposed scrapping the 12% and 28% tax slabs, replacing them with a simplified two-tier structure: 5% for essential goods and 18% for most other items. A third 40% slab was reserved for sin goods and ultra-luxury items. The Group of Ministers (GoM), initially led by former Karnataka Chief Minister Basavaraj Bommai and later by Bihar Deputy Chief Minister Samrat Chaudhary, reviewed the Centre’s proposal. A separate GoM examining the compensation cess for states also contributed to the discussions, ensuring a holistic approach.
On September 3, 2025, the GST Council adopted the Centre’s proposal, marking a historic milestone. The revamped GST regime, effective from September 22, 2025—the first day of Navaratri—will see nearly 400 products, including soaps, shampoos, cars, tractors, and air conditioners, become more affordable. Daily essentials like bread, milk, and paneer will be tax-free, while electric vehicles (EVs) and small cars will fall under the 5% slab, with other white goods taxed at 18%. Notably, premiums for individual health and life insurance will also be exempt from GST, offering significant relief to millions.
Sitharaman described the reform as a “people’s reform,” poised to touch the lives of India’s 140 crore citizens by boosting consumption and stimulating economic growth. “This is not just about cutting rates,” she emphasized. “It’s about making compliance simpler, refunds faster, and registration easier, especially for SMEs.” The Finance Minister is now focused on ensuring businesses pass on these tax benefits to consumers, with backend software updates set to be completed ahead of the implementation date.
The reform addresses long-standing criticisms of the GST, introduced in July 2017 to unify India’s complex tax system. By reducing tax slabs and resolving classification anomalies, the new structure aims to eliminate confusion and create a more business-friendly environment. For instance, the earlier discrepancies in taxing food items have been rectified, ensuring consistency and fairness.
As India gears up for this landmark change, the GST overhaul is expected to have far-reaching implications. Economists predict it will enhance consumer spending, support small businesses, and strengthen India’s economic framework. However, the success of the reform will depend on effective implementation and vigilant monitoring to ensure that businesses comply with the new rates and pass on the benefits to consumers.
With the GST Council’s approval and Modi’s vision driving the initiative, this reform signals a bold step toward simplifying India’s tax landscape. As Sitharaman prepares to oversee the rollout, the nation awaits the impact of a leaner, more efficient GST system that promises to deliver both economic and social dividends.
Also Read: PM Modi’s Unexpected Meeting with President Murmu