New Delhi, Aug. 15— The Centre has proposed a sweeping overhaul of the Goods and Services Tax (GST) framework, recommending a simplified two-slab structure along with special rates for certain goods, in a bid to lower the tax burden on common-use items and spur economic activity within the current financial year.
The finance ministry on Friday said the proposal, submitted to the Group of Ministers (GoM) on GST rate rationalisation, classifies goods and services into ‘standard’ and ‘merit’ categories, while allowing special rates for select items. The plan marks a shift from the current four-tier GST system of 5, 12, 18 and 28 percent. Essential items are currently taxed at lower rates or exempted, while luxury and demerit goods attract the highest slab plus a compensation cess.
“With the end of the compensation cess regime on March 31, 2026, the GST Council will need to decide how to tax goods that presently attract the cess,” the ministry noted.
The GST Council, chaired by Finance Minister Nirmala Sitharaman and comprising state finance ministers, is expected to meet in September to consider the GoM’s recommendations. “Every effort will be made to facilitate early implementation so that the intended benefits are substantially realised within the current financial year,” the ministry said.
Prime Minister Narendra Modi, in his Independence Day address, said “next generation” GST reforms would reduce taxes significantly and benefit small industries, describing them as a “Diwali gift” for citizens. Soon after, the ministry outlined the proposal’s three core pillars — structural reforms, rate rationalisation and ease of living.
The plan includes tax cuts on everyday goods as well as aspirational products, aiming to improve affordability and stimulate demand. It also seeks to fix inverted duty structures in specific sectors, minimise classification disputes, and ensure greater rate stability. “Structural reforms will provide long-term clarity on rates and policy direction to build industry confidence and support better business planning,” the ministry said.
For businesses, particularly small enterprises and startups, the proposals promise smoother, tech-driven GST registration, pre-filled GST returns, and faster, automated refunds for exporters and those affected by inverted duty structures. Officials said the end of the cess regime had created fiscal space to realign GST rates for long-term sustainability.
“In the true spirit of cooperative federalism, the Centre will work closely with the states to build a broad-based consensus in the coming weeks,” the ministry said. “Our commitment is to evolve GST into a simple, stable, and transparent tax system that supports inclusive growth and strengthens the formal economy.”
Bihar Deputy Chief Minister Samrat Chaudhary heads the seven-member GoM on GST rate rationalisation. The panel, formed in September 2021 under then Karnataka Chief Minister Basavaraj Bommai, was tasked with simplifying the rate structure, reviewing exemptions, and correcting duty anomalies. It had submitted an interim report to the Council in June 2022, suggesting targeted changes to rationalise the levy.
