New Delhi, Sept 3:
The Goods and Services Tax (GST) Council, chaired by Union Finance Minister Nirmala Sitharaman and comprising state finance ministers, has moved closer to a major tax reform aimed at simplifying the GST structure. In its ongoing meeting here on Wednesday, the Council has veered towards bringing shoes and clothes priced up to ₹2,500 under the lowest tax bracket of 5 per cent, according to sources.
At present, consumer goods in the price range of up to ₹1,000 attract 5 per cent GST, while those priced above are taxed at 12 per cent. The proposed change would therefore expand the ambit of the lowest tax slab, reducing the cost of essential consumer items and providing relief to the middle class.
In a significant structural shift, the Council has also decided to finalize the rollout of a simplified GST regime with only two tax slabs—5 per cent and 18 per cent. However, goods classified as “sin” or luxury items, such as cigarettes, tobacco, sugary drinks, and high-end products consumed by affluent groups, will continue to attract a higher 40 per cent slab.
With items from the current 12 per cent and 28 per cent categories being merged into the 5 and 18 per cent slabs, the total number of GST tax brackets will be reduced to two, compared to four earlier. Experts suggest that the move will bring down prices of a wide range of consumer goods, boost demand, and spur economic growth.
The GST system, introduced on July 1, 2017, initially had a 4-tier structure of 5, 12, 18, and 28 per cent. A compensation cess on luxury and demerit goods was levied to make up for state revenue losses, but that mechanism ended in June 2022.
Prime Minister Narendra Modi, in his recent Independence Day address, underscored the government’s commitment to next-generation GST reforms, built on three pillars: structural reforms, rate rationalization, and ease of living. He stressed that rationalizing rates would benefit all sections of society, including women, students, farmers, and the middle class, while also reducing disputes and ensuring greater rate stability.
The reforms, Modi said, are expected to stimulate economic activity, strengthen key sectors, and further enhance ease of doing business.
