The Finance Ministry on Friday sent a proposal to the GST Council for a new two-tier GST structure with rates of 5 per cent and 18 per cent for all goods.
Government sources confirmed the plan, which aims to simplify the tax regime and spur economic growth.
Items under the lower 5 per cent slab will include essential farm produce, health-related goods, handicrafts, and insurance.
Manufactured goods will fall under the 18 per cent category. Sin goods such as cigarettes, tobacco, sugary drinks, and pan masala will remain in the current higher tax bracket.
The ministry believes GST rate rationalisation will boost consumption and strengthen economic momentum. The GST Council, which includes finance ministers of all states, is expected to meet in September to decide on the proposal.
Reform Push Linked to PM’s Independence Day Address
The move follows Prime Minister Narendra Modi’s Independence Day speech, where he promised next-generation GST reforms before Diwali. He assured ‘substantial’ tax relief for the common man and benefits for small businesses.
Key areas for reform include lowering taxes on essential and aspirational goods, correcting inverted duty structures, and resolving classification issues.
The ministry stated that reducing GST on items used by households would enhance affordability and widen access to both essential and aspirational products.
Ending the compensation cess has created fiscal space, giving the government more flexibility to rationalise tax rates. This is aimed at long-term sustainability and improved equity within the GST framework.
Boost to Industry Confidence and Planning
The ministry stressed that aligning input and output tax rates would reduce the accumulation of input tax credit and encourage domestic value addition. Simplifying classification and compliance would minimise disputes and provide clarity to businesses.
PM Modi also announced a high-level task force to lead reforms across governance, taxation, and public service delivery. He called the GST review the ‘need of the hour’ and promised major tax cuts for household items.
“This Diwali, I am going to celebrate a double Diwali for you. The countrymen are going to get a big gift, there will be a drastic cut on GST on common household items,” PM Modi further declared.
The proposal marks another milestone in GST’s evolution since its launch in 2017, which unified India’s indirect tax system and improved ease of doing business, especially for small and medium enterprises.
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