GST council approves major rate restructuring, two-tier system to replace 12 per cent and 28 per cent slabs

In a landmark decision aimed at simplifying India’s indirect taxation system, the 56th meeting of the Goods and Services Tax (GST) Council chaired by Union Finance Minister Nirmala Sitharaman on Wednesday, September 3 approved a major rationalisation of GST rates.

The Council decided to abolish the existing 12 per cent and 28 per cent tax slabs, streamlining the structure into two main rates — 5 per cent and 18 per cent. In addition, a new 40 per cent slab will be introduced specifically for sin and luxury goods. The revised structure will take effect from September 22, according to government sources.

Announcing the development, Finance Minister Sitharaman said, “We’ve reduced the slabs. There shall be only two slabs, and we are also addressing the issues of compensation cess.”

As part of the restructuring, around 175 mass-consumption items, including essentials such as milk, paneer, bread, and snacks, will see a price drop. Nearly 99 per cent of products earlier taxed at 12 per cent will now attract a lower 5 per cent GST, while about 90 per cent of goods previously under the 28 per cent slab will move to 18 per cent.

The steep 40 per cent tax rate, described as a “sin tax,” will be levied on about a dozen luxury and demerit goods, including tobacco products and paan masala.

Economists and industry experts see this as one of the most significant tax reforms since the introduction of GST in 2017, expected to ease compliance, reduce litigation, and provide relief to consumers.