The Goods and Services Tax (GST) Council has begun a crucial two-day meeting, led by Finance Minister Nirmala Sitharaman, to discuss major changes aimed at making everyday items more affordable for people across India.
Prime Minister Narendra Modi has called this move a potential “Diwali gift” for traders, promising cuts in tax rates that could simplify the current system and lower prices for many goods and services.
The Council, which includes finance ministers from states and Union Territories, is considering reducing the existing four tax slabs of 5%, 12%, 18%, and 28% to just two main rates: 5% and 18%.
Goods and services will be divided into ‘merit’ and ‘standard’ categories, with the lower 5% rate applying to ‘standard’ goods. A special 40% ‘sin tax’ will continue on certain products such as tobacco and luxury automobiles.
Under the proposed changes, many items currently taxed at 28% could move down to 18%, while some goods in the 18% bracket may be lowered to 12% or even 5%. Small cars with engines under 1200cc, motorcycles under 350cc, and auto parts may see their GST rate fall from 28% to 18%.
Hotel stays and movie tickets might become more affordable as their tax drops from 12% to 5%. Medical essentials like cancer drugs may be fully exempted, while other medicines and health supplies could move from 12% to 5%. Life and health insurance premiums, which currently carry an 18% tax, are also likely to be exempted.
Regular items such as paneer, pizza bread, khakra, fruit juices, coconut water, butter, cheese, pasta, and ice cream could become affordable.
Agricultural inputs like sulphuric acid, nitric acid, and ammonia may see a cut from 18% to 5%. Textiles, including synthetic yarns, carpets, and handicrafts, might be moved to the 5% slab from 12%.
In a green push, solar cookers are expected to have their GST cut from 12% to 5%.
Stationery like erasers, previously taxed at 12%, may be exempt, while maps, notebooks, and atlases could see a rate reduction to 5%.
Toiletries such as tooth powders may be lowered from 12% to 5%, toothpaste from 18% to 12%, and shampoo, oil, and soap might also drop from 18% to 5%. Umbrellas are likely to see a GST rate reduction to 5%, and hotel rooms with rent up to Rs 7,500 may have their tax cut from 12% to 5%.
At the same time, some products may face higher taxes. Tobacco, pan masala, and luxury cars are in for a hefty 40% sin tax, marking a sharp climb for these items.
Meanwhile, small cars could enjoy the relief of lower GST rates, but electric vehicles tell a different story. EVs priced between Rs 20-40 lakh might see their GST jump from 5% to 18%, and luxury electric cars costing over Rs 40 lakh could face the steep 40% tax.
The energy sector isn’t spared either—coal and some other energy products could see their GST rise from 5% to 18% once the cess is removed, a change that might push up costs for power producers and eventually hit electricity bills.
Even apparel won’t escape unscathed, with clothing priced above Rs 2,500 per piece potentially facing an increase from 12% to 18%.
These reforms come amid challenges like the US imposing a 50% tariff on Indian goods worth $48 billion, which threatens businesses and jobs. The government hopes that simplifying GST and cutting rates on essential goods will encourage more spending and help protect the economy. Recent figures show India’s GDP grew by 7.8% in the first quarter of FY26, better than expected.
An SBI report claims that these GST reforms, combined with recent income tax cuts, could boost consumption by Rs 5.31 lakh crore. That is approximately 1.6% of India’s GDP.
The new tax slabs also uphold the vision of building an ‘aatmanirbhar’ India.
However, Tamil Nadu, Punjab, and West Bengal have reportedly expressed reservations. These states are concerned about losing revenue.
Reports claim that some state finance ministers plan to present their views to the Council, asking for compensation for potential losses. They suggest imposing additional duties on sin and luxury goods, with proceeds shared among states to balance the impact of rate rationalisation.
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