A Big Reset in GST Structure
Government officials confirmed that the 28% slab will be scrapped under the proposed system. Instead, essentials and daily-use goods will attract 5%, while most other goods and services will fall under the 18% bracket. A limited set of harmful and luxury products will face the new 40% rate. The move is aimed at simplifying compliance and boosting consumer demand without hurting revenue collections.
What Gets Cheaper
The reform plan could bring welcome relief for households. Items such as stationery, packaged food, ghee, namkeens, bicycles, footwear, and eyewear are likely to move into the 5% slab. Medicines and medical equipment may also see lower tax rates, possibly dropping from 12% to 5% or even nil. Another major relief could come in health and life insurance premiums, which are currently taxed at 18% but could be reduced to 5%.
This change aligns with the government’s push to make healthcare and financial protection more affordable for the middle class. Farmers may also benefit, as inverted duty structures in fertilisers and textiles are set to be corrected.
Consumer Durables and Automobiles in Focus
The blueprint extends to automobiles and consumer durables. Two-wheelers below 350cc, refrigerators, televisions, and cement may shift from 28% to 18%. Small cars under 1200cc engines, currently facing 29–31% (including cess), could be taxed at a flat 18%. Hybrid passenger vehicles are also likely to become cheaper under the new structure.
Revenue Impact and Balancing Act
Officials argue that the reforms balance affordability with revenue security. At present, the 18% slab contributes about 65–67% of total GST revenue and will continue to anchor collections. The 12% slab, which contributes 5%, will largely shift to 5%. The removal of the 28% slab — responsible for 11% of GST collections — will be offset by the introduction of the 40% sin goods category.
The 40% Sin Goods Slab
The new slab is expected to cover around 5–7 categories, including pan masala, gutkha, tobacco products, luxury cars, SUVs, and online gaming. These items are considered either harmful to health or luxury-oriented, and the government aims to use the higher rate both as a deterrent and a revenue stabiliser.
Industry Reactions
Tax experts and industry voices are cautiously optimistic. Kulraj Ashpnani, Partner at Dhruva Advisors LLP, called it a “structural reset” designed to reduce disputes and simplify compliance. He highlighted that the reforms could boost consumption by lowering taxes on essentials and aspirational goods, thereby putting more money back into people’s pockets.
However, concerns remain in the hospitality sector. Celebrity chef and restaurateur Harpal Singh Sokhi said restaurants could only benefit if food-related items were brought down to 5%. He also pointed out confusion in the current system, where the same item draws different tax rates depending on whether it is served in-house or packaged.
The Road Ahead
The Group of Ministers on GST rate rationalisation will deliberate on the proposals on August 20 and 21. The final decision will rest with the GST Council, chaired by the Union Finance Minister. If approved, the changes could be rolled out as early as the festive season, in what officials describe as a “Diwali bonanza.”
The proposal ties into Prime Minister Narendra Modi’s Independence Day message, where he hinted at a simplified GST system aimed at making essentials cheaper while taxing sin goods more heavily. For businesses, especially MSMEs and startups, the reforms promise reduced compliance burden, faster refunds, and greater predictability.
Looking Forward
The proposed GST reset is more than a tax change. It reflects India’s effort to build a simple, stable, and transparent tax regime that encourages growth while ensuring fairness. If implemented, it could reshape consumption patterns, ease pressure on households, and help India move closer to its Atmanirbhar Bharat vision.
