The central government's move for GST rationalisation will be themost sweeping tax reform since 2017, aiming to lower consumption levies on everyday items and small cars from October. The move is widely seen as a bid to bolster consumer demand and strengthen Prime Minister Modi's political image amid trade frictions with Washington.
Introduced in 2017, the Goods and Services Tax (GST) merged more than a dozen State-level taxes under the principle of “one nation, one tax, one market.” It was billed as the most ambitious tax reform since Independence but has often been criticised for complexity.
The system currently has four slabs — 5, 12, 18 and 28 percent — with additional “cess” charges on items such as cigarettes, luxury cars and high-end motorcycles. Quirky disputes have highlighted its uneven structure. For example, plain flatbreads are taxed at 5 percent while flaky layered varieties face 18 percent, and caramel popcorn is taxed higher than the salted version.
The new plan aims to abolish the highest 28 percent slab, which applies to products such as cars, refrigerators and air-conditioners. Goods taxed at 12 percent — including butter, dry fruit and packaged juices — would mostly move into the 5 percent bracket. Small cars, previously in the 28 percent category, are expected to be taxed at 18 percent.
According to IDFC First Bank, the reforms could trim revenues by about ₹1.75 lakh-crore. Last year, India collected approximately ₹20 lakh-crore.
Lower taxes are expected on personal care items such as toothpaste and hair oil, while construction materials like cement could also see cuts, potentially boosting housing and infrastructure demand. Consumer durables including televisions, refrigerators and air-conditioners would become cheaper, benefiting global electronics majors such as Samsung and LG.
The 18 percent slab, which accounts for 67 percent of GST revenue, will remain unchanged. Economists say the proposed cuts could ease inflationary pressures and give the Reserve Bank of India more room for interest rate reductions. Stronger consumption — which makes up about 60 percent of India’s GDP — could lift nominal growth by 0.6 percentage points over the next year, IDFC First estimates.
The proposal still requires approval from the GST Council, chaired by Finance Minister Nirmala Sitharaman and comprising state finance ministers. Since GST is a key source of state revenue, resistance is likely, particularly given past disputes over rates on casinos, lotteries and online gaming.