In a sweeping overhaul of India&rsquo;s indirect tax system, the Centre has proposed the most ambitious reform in the history of the Goods and Services Tax (GST). PM Modi announced a simplified GST structure aimed at easing the tax burden on ordinary citizens and boosting consumption.
Under the proposal, only two main tax slabs of 5% and 18% will remain, replacing the existing four-tier structure. The contentious 12% and 28% brackets will be abolished, with 99% of items in the 12% category shifted down to 5%, while 90% of goods and services taxed at 28% will move to 18%. Luxury and harmful products such as tobacco and gutka will attract a new &ldquo;sin rate&rdquo; of 40%. A concessional slab of less than 1% is also being introduced for precious metals like gold and silver, which are currently taxed at 3%.
&ldquo;There will of course be a hit to revenue, but it will not be so huge as to materially affect the fiscal deficit,&rdquo; an official source said. &ldquo;The thinking is that the lower rates will increase consumption, reduce evasion, and widen the tax net, which will increase revenues by the end of the financial year.&rdquo;
The reforms also promise a technology-driven overhaul of GST compliance. Faster registrations, pre-filled returns, and automated refunds are on the cards to ease business processes. The government also plans to resolve the inverted duty structure that has locked up working capital for many companies.
Officials noted that while the 28% slab contributes 18% of GST revenue and the 12% bracket is decreased to 5%, the bulk, nearly 67%, comes from the 18% slab. By rationalising rates and broadening the tax base, the government hopes to make up for the short-term revenue loss.
&ldquo;This reform is designed to lower the tax burden on the common man and create a fairer, simpler system,&rdquo; Modi said, framing the move as both a relief to consumers and a stimulus for the economy.
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Next-gen GST reforms unveiled: 12% & 28% scrapped, special 40% for luxury goods

Big GST Reform: Slabs Slashed, Tax Eased

Next-gen GST reforms unveiled: 12% & 28% scrapped, special 40% for luxury goods

August 21, 2025 | 21:57 IST