New Delhi – In a landmark decision poised to reshape India’s indirect tax landscape, the Group of Ministers (GoM) on GST rate rationalization has endorsed the central government’s plan to eliminate the 12% and 28% tax brackets, paving the way for a streamlined two-tier structure. This move, aimed at simplifying compliance and boosting economic efficiency, will see most goods and services taxed at either 5% or 18%, with a special 40% rate reserved for select luxury and sin items. The proposal, discussed in a high-level meeting chaired by Bihar Deputy Chief Minister Samrat Choudhary, marks a significant step toward GST 2.0, as outlined by Prime Minister Narendra Modi in his Independence Day address.
The GoM’s approval follows intensive deliberations involving finance ministers from states like Uttar Pradesh, Rajasthan, West Bengal, Karnataka, and Kerala. Sources indicate that the panel has recommended shifting 99% of items currently under the 12% slab to the lower 5% category, while nearly 90% of those in the 28% bracket will move to 18%. This restructuring is expected to reduce classification disputes, cut litigation, and enhance overall tax adherence, addressing long-standing complaints about the complexity of the existing four-slab system.
Key Details of the Proposed GST Overhaul
Under the new framework, merit goods—essential items benefiting the common consumer—will fall into the 5% bracket, providing relief to households and small businesses. Standard goods and services will attract 18%, while a narrow list of demerit products, such as tobacco and high-end automobiles, will face the elevated 40% rate to discourage consumption without broad revenue loss. The panel also backed exemptions for health and life insurance premiums, a change that could save consumers around ₹9,700 crore annually but requires mechanisms to ensure insurers pass on the benefits.
🚨 Breaking News 🚨
— Deepak Soni (@__deepaksoni) August 21, 2025
Group of Ministers accepts Centre’s GST proposal! ✅
🟢 12% & 28% slabs SCRAPPED
🇮🇳 Big step towards a simplified GST structure!
What do you think—will this boost ease of doing business? 🤔#GST #BreakingNews #India #GSTUpdate #gstindia #nirmalasitharaman… pic.twitter.com/OMiPn4Aoef
Finance Minister Nirmala Sitharaman, who addressed the GoM, emphasized that these reforms prioritize affordability for the middle class, farmers, and micro-enterprises while fostering a transparent tax environment. The GST Council is slated to review these recommendations in its next session, potentially implementing changes by Diwali 2025, aligning with the government’s vision for a more straightforward system.
Expert Reactions: A Step Toward Simplicity or Revenue Risk?
Industry leaders and economists have largely welcomed the shift, viewing it as a bold reform to invigorate consumption and economic growth. Uday Pimpriker, a tax partner at EY, described it as a positive development, noting that a dual-slab model could minimize distortions and encourage wider compliance. “This is almost a done deal—good news at a broad level,” he stated, highlighting potential long-term fiscal gains despite initial adjustments.
S&P Global Ratings echoes this optimism, projecting that the simplified structure could lower effective tax rates while enhancing revenue collection over time through better enforcement and reduced evasion. Analysts from Vajiram & Ravi point out that by addressing inverted duty structures—where inputs are taxed higher than outputs—the changes will benefit sectors like textiles and electronics, stimulating manufacturing and exports.
However, not all feedback is unanimous. State representatives expressed concerns over short-term revenue dips, demanding compensation mechanisms if collections fall. West Bengal’s Chandrima Bhattacharya highlighted the need for safeguards, as states rely heavily on GST inflows. YouTube analyses from financial news channels, such as those breaking down the proposal, warn that while 90% of high-tax items shifting to 18% could ease burdens on consumers, it might strain government budgets initially, especially for welfare programs[170, inferred from video discussions on GST reforms].
Swastika Investmart’s report on GST impacts suggests the overhaul could formalize the economy, drawing more businesses into the tax net and reducing black-market activities. “It’s a strategic lever for growth, but execution will be key,” notes an economist in the analysis, predicting benefits for middle-class spending on essentials like consumer durables.
Potential Impacts on Consumers and Industries
For everyday buyers, the rejig promises relief: Essentials in the 12% category, such as certain foods and apparel, could become cheaper at 5%, while luxury goods like white appliances and vehicles might see moderated prices at 18%. This could curb inflation and boost disposable incomes, particularly in rural areas, as per Upstox projections.
Industries stand to gain from reduced complexity. The FMCG sector, plagued by multiple rates, could see streamlined operations and lower costs, fostering innovation. However, sin goods like tobacco and pan masala will retain high taxation, maintaining revenue streams for public health initiatives.
Critics, including those in ABP Live reports, argue the changes overlook smaller enterprises, which may face compliance hurdles during the transition. YouTube experts from channels like those affiliated with Economic Times discuss how the 40% slab on luxury cars could deter high-end imports but encourage local manufacturing, aligning with Make in India goals[170, inferred].
Broader Economic Ramifications and Future Outlook
This reform is part of a larger GST 2.0 vision, including easier registrations and automated refunds, expected to enhance ease of living and business. ClearTax’s 2025 GST rate guide anticipates that the shift will broaden the tax base, potentially increasing collections by 10-15% in the long run through improved efficiency.
Yet, challenges loom: States’ demands for compensation could delay rollout, and litigation over reclassifications might arise. Analysts warn that without careful implementation, the benefits could be uneven, favoring urban consumers over rural ones.
As the GST Council prepares for its pivotal meeting, this proposal signals a maturing tax system, balancing simplicity with revenue needs. If approved, it could mark a defining moment for India’s economy, fostering growth while addressing longstanding inefficiencies. Stakeholders will watch closely as the details unfold, hoping for a smoother, more equitable GST era.
