The Finance Ministry has confirmed that the Central Government has submitted its detailed proposal on GST rate rationalisation and reforms to the Group of Ministers (GoM) set up by the GST Council. This proposal focuses on creating a fairer and simpler GST framework that addresses the needs of all sections of society, particularly the middle class, farmers, students, women, and small businesses.
The next phase of GST reforms aims to correct current gaps in the system, reduce legal disputes, simplify compliance, and promote long-term rate stability. These measures are expected to strengthen various industries, enhance ease of doing business, and drive overall economic growth.
Key Pillars of the Proposed GST Reforms
Pillar 1: Structural Reforms
- Fixing Inverted Duty Structures: Align input and output tax rates so that businesses do not suffer from excess input tax credit accumulation. This will support domestic value creation.
- Solving Classification Issues: Remove complexities around product classifications, thereby reducing disputes, ensuring fair treatment across sectors, and simplifying compliance.
- Stability and Clarity: Provide industries with long-term certainty in tax rates and policies for better planning and confidence in the system.
Pillar 2: Rate Rationalisation
- Relief on Essentials and Aspirational Goods: Lower tax rates on everyday-use items and aspirational products to make them more affordable and boost consumption.
- Simpler Tax Slabs: Move towards just two primary slabs — a standard and a merit rate, with special rates restricted only to select categories.
- Compensation Cess Phaseout: With the end of compensation cess, there is more flexibility to align GST rates sustainably for the long run.
Pillar 3: Ease of Living and Business
- New Registration Process: Faster, technology-driven, and hassle-free process, especially beneficial for small businesses and startups.
- Simplified Returns: Pre-filled return formats that minimize manual errors and reduce mismatches.
- Quick Refunds: Automated and speedy refund system, particularly for exporters and sectors affected by inverted duty structures.
Likely Tax Slab Changes
According to reports, a large number of items may see rate reductions. Almost 99% of products currently in the 12% bracket could move to 5%, and about 90% of products in the 28% bracket may shift to 18%.
Products expected in 5% GST bracket:
- Toothpaste, soaps, hair oil, tooth powder
- Processed foods, snacks, frozen vegetables, condensed milk
- Mobiles, computers, sewing machines, pressure cookers, geysers, irons, vacuum cleaners
- Water filters (non-electric)
- Ready-made garments priced above ₹1,000 and footwear between ₹500–₹1,000
- Vaccines, HIV/TB diagnostic kits, Ayurvedic medicines
- Bicycles, stoves (non-kerosene), barbecues, cookware, utensils
- Exercise books, geometry boxes, globes, maps
- Glazed tiles, prefabricated buildings, vending machines
- Agricultural machinery, solar water heaters, public transport vehicles (sold, not fares)
Products expected in 18% GST bracket:
- Insurance services (in some cases may reduce to 0%)
- Cement, ready-mix concrete
- TVs, refrigerators, air conditioners, washing machines, dishwashers
- Car seats, motorcycle seats, railway AC units, aircraft for personal use
- Aerated beverages, protein concentrates, sugar syrups, coffee extracts
- Plastic products, rubber tyres, tempered glass, aluminium foils
- Printers, razors, manicure kits, dental floss
The Finance Ministry has stated that the proposals will be discussed in the upcoming GST Council meeting. The government plans to push for early implementation within this financial year so that both consumers and industries can enjoy the benefits at the earliest.
