India is on the verge of a significant overhaul of its Goods and Services Tax (GST) system, with new rates expected to be implemented as early as Dussehra. The proposed reforms, endorsed by a Group of Ministers on rate rationalization, aim to simplify the current four-tier structure of 5%, 12%, 18%, and 28% into a leaner two-tier model of 5% and 18%.A special 40% levy will be maintained for certain “sin goods.”
This move, following a promise of “next-generation GST reforms” by Prime Minister Narendra Modi, is intended to reduce the tax burden on the common man, boost consumption, and stimulate economic activity.
Under the new plan, a majority of items currently taxed at 12% would shift to the 5% slab, while most goods in the 28% slab would be moved to 18%, providing potential relief to consumers. A key proposal also includes the removal of GST on individual health and life insurance premiums.
While the changes promise greater simplicity and a potential economic boost, they are not without challenges. Finance Ministry sources indicate a potential revenue shortfall of Rs 40,000 crore as a result of the rate rationalization, a deficit that both the Centre and states will have to absorb.
This challenge is compounded by a separate loss of approximately Rs 20,000 crore from a recent ban on online gaming.
Despite these concerns, officials believe the revenue impact will be temporary and can be offset by stronger consumer spending.
The government has already taken steps to encourage this, including an income tax rebate for salaried individuals. The final decision on the new rates will be made at the 56th meeting of the GST Council, scheduled for September 3-4 in New Delhi, setting the stage for the new structure to be in place by the festive season.
