The GST Council meeting commencing today is anticipated to address one of the largest overhauls of India’s indirect tax framework since the introduction of GST in 2017. The central government has introduced a proposal for a two-slab GST structure, aiming to reduce the existing four tax rates (5%, 12%, 18%, and 28%) down to just two rates: 5% and 18%. If approved, a majority of goods currently taxed at 12% will transition to the lower 5% slab, which includes essential items such as ghee, nuts, packaged drinking water, medicines, medical devices, snacks, bicycles, umbrellas, and school stationery like pencils. Consequently, consumers may experience a significant reduction in prices for many necessities.
Electronics and household appliances are also expected to become more affordable. Items such as televisions, washing machines, and refrigerators that currently fall under the 28% tax category are projected to shift to the 18% slab under the proposed GST reforms for 2025. In contrast, luxury and “sin” goods may incur higher taxes, with the government suggesting a specific 40% slab for high-end vehicles, premium automobiles, and products like tobacco, pan masala, and cigarettes. Additionally, the government is contemplating an extra cess on these items to maintain revenue levels.
Electric vehicles (EVs) are another area of focus, as the government aims to retain them at a 5% GST rate to promote their adoption, though deliberations are ongoing regarding higher taxes on luxury EVs. Not all states are supportive of these proposed changes, with several opposition-led states expressing concerns that the GST tax reductions will diminish their revenues. They are demanding a compensation strategy, particularly since the previous revenue support scheme concluded in 2022. The outcomes of the GST Council’s decisions will be closely monitored, as this reform promises to lower costs for essential goods and electronics while increasing expenses for luxury and demerit items. If enacted, this would represent the most significant restructuring of the GST since its inception.
