GST overhaul: Most items to attract 5%, 18% tax; luxury goods may touch 40%

Nearly 99 per cent of items currently taxed at 12 per cent are expected to move to the 5 per cent slab, while most of the goods in the 28 per cent bracket would fall under the 18 per cent rate

The Centre has proposed a major overhaul of the goods and services tax (GST) structure, suggesting 5 per cent and 18 per cent rates for most goods, while a special 40 per cent levy would apply to luxury and sin items like tobacco, PTI reported on Friday, citing government sources.

 

Under the proposed reforms, nearly 99 per cent of items currently in the 12 per cent slab, including common daily-use products, are expected to move to 5 per cent, while around 90 per cent of goods in the 28 per cent bracket would fall under the 18 per cent rate. Petroleum products will continue to remain outside the GST regime, PTI reported.

 

The move is aimed at boosting consumption, offsetting any revenue loss from the rate rationalisation, the report added. 

 

The development comes hours after Prime Minister Narendra Modi on Friday announced plans to introduce “next generation” reforms in the GST regime, aimed at reducing taxes on essential items, streamlining the rate structure, and lowering compliance costs.

 

“This Diwali, I am going to make it a double Diwali for you. The citizens will receive a big gift on this Diwali… We are bringing next-generation GST reforms. This will reduce the tax burden across the country. This will be a gift ahead of Diwali,” PM Modi said during his Independence Day speech from the Red Fort.

 

He added that in the first phase, taxes on basic necessities will be reduced, which will benefit MSMEs and small traders, lower the cost of living, and give fresh momentum to the economy.

 

Shortly after the Prime Minister’s address, the finance ministry released a statement detailing plans for a comprehensive GST revamp. The proposed changes will centre on three pillars—structural reforms, rate rationalisation, and ease of compliance for taxpayers. The proposals have been forwarded to a Group of Ministers under the GST Council for further review, the ministry added.