New Delhi, August 15, 2025। SKY LINK TIMES
The Centre may cut GST slabs from 4 to 2, moving most items to 5% and 18%, while keeping a 40% rate for luxury and sin goods. Petroleum stays outside GST.
In a major tax reform push, the Centre is considering a significant overhaul of the Goods and Services Tax (GST) structure by reducing the existing four tax slabs to just two – 5% and 18% – according to government sources.
As part of the proposal, 99% of items currently in the 12% slab would move to the 5% slab, while 90% of items in the 28% slab would be shifted to the 18% slab. The changes aim to simplify the GST system, making it more transparent and consumer-friendly.
Special 40% Slab for Luxury & Sin Goods
A special 40% GST rate would remain in place for a handful of luxury and sin goods, including tobacco, gutkha, and cigarettes. Sources indicate that only 5-7 items would be taxed at this rate, and it would not include aspirational goods such as refrigerators, air conditioners, or washing machines.
Petroleum products will continue to stay outside the GST regime even after the revamp. High labour-intensive and export-oriented sectors such as diamonds and precious stones will also retain their existing tax rates
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Revenue and Consumption Impact
The Finance Ministry’s data reveals that 67% of total GST revenue comes from items in the 18% slab, while 11%, 5%, and 7% are contributed by the 28%, 12%, and 5% slabs respectively. The proposed changes are expected to keep the overall tax incidence at the current level of 88% while giving a boost to consumption.
Officials believe that the rate rationalisation will offset any short-term revenue losses by encouraging spending.
A Reform for All Sections of Society
The proposal aligns with Prime Minister Narendra Modi’s Independence Day announcement of next-generation GST reforms aimed at benefiting all sections of society — particularly the common man, women, students, the middle class, and farmers.
These reforms, described as a “double Diwali” gift for the economy, are part of the government’s broader strategy to simplify the tax regime, reduce compliance burden, and promote economic growth.
If approved, the GST revamp could mark one of the biggest structural changes to the indirect tax system since its introduction in 2017.
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