GST Council Proposes Two-Slab Tax Structure in Major Reform Push

The GST Council, in its 56th meeting held today under the chairmanship of Finance Minister Nirmala Sitharaman, unveiled a bold proposal to restructure India’s Goods and Services Tax system. Aimed at simplifying compliance and boosting consumption, the plan recommends moving from the current four-tier rate system to a dual-rate structure of 5% and 18%, while introducing a separate 40% rate for luxury and sin goods.

The existing slabs of 5%, 12%, 18%, and 28% would be rationalized, with many commonly used goods and services shifting to lower tax rates. Daily-use items such as packaged food, namkeen, school supplies, medicines, and household essentials are expected to be moved to the 5% category. Consumer durables, currently taxed at 28%, may be brought under the 18% slab—potentially lowering prices ahead of the festive season.

To compensate for revenue loss, the Council is exploring a steep 40% GST on high-end and non-essential goods. This could apply to luxury cars, tobacco products, premium apparel priced above ₹2,500, and business-class air travel.

However, the proposal has raised concerns among several states, particularly opposition-ruled ones like Tamil Nadu, Kerala, Punjab, and West Bengal. These states warn that the new structure could lead to annual revenue losses between ₹85,000 crore and ₹2 lakh crore, and have demanded a clear compensation framework to safeguard state finances.

Despite resistance, economists believe the reforms could drive long-term gains. An SBI report suggests states may still see overall fiscal benefits by FY26 through higher compliance and a wider tax base. Bank of Baroda estimates the changes could add up to ₹1 lakh crore to consumer spending in the second half of the fiscal year.

If consensus is reached, the revised GST structure could come into effect as early as midnight on September 5. The outcome of the ongoing deliberations could mark a defining moment for India’s indirect tax regime.