GoM Backs Simplified GST with Just Two Slabs of 5% and 18%

The Group of Ministers (GoM) has approved the Centre's plan to do away with the 12% and 28% GST slabs, which is a major step towards streamlining India's indirect tax structure. Just two primary rate categories—5% for merit products and 18% for standard goods—will remain in the updated system, with ultra-luxury and sin items still subject to a special 40% charge. At the GoM's August 21 meeting, which was presided over by Bihar Deputy Chief Minister Samrat Choudhary, this suggestion was accepted.

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Taxation Shift: What Will It Mean?

The changes are expected to be monumental in scope. Approximately 99% of items currently under the 12% slab are set to be reclassified at 5%, while nearly 90% of goods in the 28% slab will be brought down to 18%. A higher 40% tax will remain on a limited number of sin goods, including luxury vehicles.

Finance Minister Nirmala Sitharaman described the reforms as a step toward creating a simplified, transparent, and growth-oriented tax regime, especially beneficial for the common citizen, farmers, the middle class, and MSMEs.

Roadmap Ahead: GST Council and Compensation Talks

The forthcoming GST Council meeting, which will complete the new tax system, is anticipated to consider the GoM's proposals.  Revenue issues have been raised by a few governments, most notably West Bengal.  In order to prevent tax reform from having a negative effect on state finances, they have called for compensation measures.

Broader Implications

This marks the first major move to implement "GST 2.0", a reform initiative first announced by Prime Minister Narendra Modi in his Independence Day address. The simplification to two slabs aims to make compliance easier for businesses, increase transparency, and drive economic activity by lowering effective tax burdens.

Conclusion

The GoM’s endorsement of the two-slab GST structure represents a pivotal step in India’s tax reform journey. By simplifying GST rates and reducing complexity, the government hopes to boost compliance, relieve pressure on consumers and businesses, and fast-track growth. Final approval now rests with the GST Council.