The Finance Ministry on Friday unveiled a proposal for a simplified, two-tier Goods and Services Tax (GST) structure, featuring a “standard” and a “merit” slab, along with special rates for certain goods.
The move follows Prime Minister Narendra Modi’s Independence Day address from the Red Fort, where he promised that next-generation GST reforms—set to roll out by Diwali—would bring “substantial” tax relief to citizens and benefit small businesses.
The draft proposal for GST rate rationalisation and reforms has been referred to the Group of Ministers (GoM) constituted by the GST Council for examination.
The reforms, as per the ministry, are to rationalize tax rates in a manner that benefits every section of society with special emphasis on the common man, women, students, the middle class, and farmers. A major step in this direction is to reduce taxes on common household items and aspirational goods in order to boost their affordability, drive consumption, and make the products commonly available.
The ministry observed that the end of the compensation cess system has made fiscal space, which allows more room to refashion and bring tax rates in line within the GST system for long-term viability.
Other suggestions are to correct inverted duty structures so that input and output tax rates are closer to matching, which will help avoid the build-up of input tax credit and promote domestic value addition. Classification problems, compliance simplification, minimization of disputes, and fairness and consistency across industries will also be tackled by the ministry.
The aim is to ensure long-term clarity on rates and direction of policy, which will instill industry confidence and facilitate better business planning," the ministry added.
During his Independence Day address, PM Modi announced the establishment of a high-level task force to drive sweeping reforms in governance, taxation, and public delivery of services.
"This Diwali, I will give you a double Diwali. The country's people are going to get a big gift—there will be a substantial cut in GST on everyday household items," he said, reiterating that re-examining GST rates was "the need of the hour."
Commemorating eight years of GST's inception in 2017, the tax overhaul has brought India's indirect tax structure under one umbrella and significantly enhanced the ease of doing business, specifically for small and medium-sized businesses.
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