The government is planning sweeping reforms in the Goods and Services Tax (GST) regime, including a simplified two-slab structure with lower rates for essential and aspirational goods. The finance ministry’s announcement came soon after Prime Minister Narendra Modi promised “next-generation GST reforms” by Diwali in his Independence Day address on Friday.
“The government will bring next-generation GST reforms that will reduce the tax burden on the common man. It will be a Diwali gift for you,” Modi said, assuring that the changes would directly benefit citizens and stimulate economic activity.
Following the prime minister’s statement, the Ministry of Finance said it has submitted a proposal to the Group of Ministers (GoM) constituted by the GST Council. The proposal outlines reforms under three pillars — structural changes, rate rationalisation, and ease of living.
“The reforms are aimed at making essential goods more affordable, directly benefiting consumers while boosting consumption and economic growth. The move will particularly help middle-income families and small businesses, while simplifying the tax structure,” the ministry said in a social media post.
The structural changes will focus on correcting inverted duty structures to align input and output tax rates, reducing accumulation of input tax credit; resolving classification issues to streamline rates, minimise disputes, and ensure greater equity across sectors; and providing long-term clarity on rates and policy direction to build industry confidence.
Rate rationalisation will involve reducing taxes on mass-consumption and aspirational goods, and consolidating GST into two slabs — standard and merit — with special rates only for a few items.
For ease of living, the focus will be on simplifying registration, return filing, and refund claims.
The GST Council, which last met in December 2024, is expected to convene in September. “It is expected that this Diwali, items of mass consumption will be brought under the lower 5% GST slab,” said Vivek Jalan, Partner at Tax Connect Advisory Services LLP.
The final details will be worked out in consultation with states through the GST Council in the coming weeks, with the aim of implementation before the festive season. The ministry emphasised that the proposals are being advanced in the spirit of cooperative federalism.
GST, rolled out on July 1, 2017, has completed eight years. “After eight years, the time has come to review and upgrade the system,” Modi said. A committee for the review has already consulted states, paving the way for the upcoming reforms.