GST Council Meeting Begins: Big Rate Cuts, Dual-Slab System Likely on Agenda

The 56th meeting of the Goods and Services Tax (GST) Council opened in New Delhi today, with Finance Minister Nirmala Sitharaman presiding over the two-day deliberations. The session is drawing sharp attention from both consumers and industries, as members are expected to take up some of the most significant tax changes since GST was rolled out in 2017.

Move Towards Simpler Tax Structure

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At the heart of discussions is the government’s proposal to move towards a two-slab system. If cleared, the current structure of four slabs would be reduced to just 5% and 18%, with a separate 40% bracket reserved for tobacco, pan masala and other demerit goods.

Sources suggest that around 175 items could see tax reductions, ranging from daily household goods like toothpaste, shampoos, ghee and pickles to consumer durables such as refrigerators, televisions and washing machines. Automobiles are also in focus—entry-level cars and two-wheelers may move to the 18% slab, while luxury vehicles and SUVs are likely to attract the higher levy. Officials believe the average GST rate could fall below 10%, from the present level of about 11.5%, if these changes go through.

Relief Across Key Sectors

• The FMCG sector stocks could be among the biggest beneficiaries, with tax cuts expected on a wide range of essentials and packaged foods. Electronics makers are also hoping for relief, especially ahead of the festive season, as reduced rates may encourage consumer spending.
• The auto sector has seen rising expectations in recent weeks, with investors betting on GST relief for two-wheelers and compact cars. Tyre manufacturers, meanwhile, have urged the government to cut GST on tyres from 28% to 5%, arguing they are necessities for agriculture, transport and mining rather than luxury products.
• Insurance is another area under review. Proposals are on the table to exempt life and health premiums from GST altogether, a step that would ease costs for households but trim government revenues by an estimated ₹9,700 crore annually.

Compensation Cess Under Review

Beyond rate rationalisation, the Council is also expected to address the future of the compensation cess, which was originally designed to offset state revenue losses after GST’s rollout. While the cess is scheduled to continue until March 2026, officials are considering ending it as early as October this year, once loans taken during the pandemic are fully repaid. Such a move could leave a small surplus of ₹2,000–3,000 crore to be shared between the Centre and states.

States, however, remain cautious. Several finance ministers have warned that revenue losses from rate cuts could touch ₹80,000 crore annually, making it difficult to balance budgets without additional support. Short-term mechanisms to bridge this gap may be discussed, though an extension of the existing cess has been ruled out.

Conclusion

The 56th GST Council meeting has the potential to reshape India’s indirect tax system in a way not seen since 2017. While the promise of lower rates on everyday essentials, cars and electronics will be welcomed by consumers, the challenge of compensating states for lost revenues could make consensus difficult. The outcome of this meeting will be closely watched by markets, businesses and households alike.