PM Modi unveils GST reforms with tax cuts, two-slab structure plan

PM Modi announced "next generation" GST reforms to lower taxes on essentials, simplify rates to two slabs, and ease compliance, with the GST Council to take up proposals soon

Prime Minister Narendra Modi on Friday announced that the government will soon introduce “next generation” reforms in the Goods and Services Tax (GST) regime, aimed at lowering taxes on essential goods, simplifying the rate structure, and reducing compliance costs, as part of a broader review of the indirect tax system.

 

Speaking from the Red Fort on the occasion of 79th Independence Day, PM Modi said a high-powered committee has been set up to review the GST framework after eight years of its rollout in 2017, and that states have been consulted.

 

“In the first phase, taxes on basic necessities will be reduced. This will benefit MSMEs and small traders, lower the cost of living, and give fresh momentum to the economy,” he said, calling the upcoming changes a “Diwali gift” to citizens. 

 

Soon after the PM’s address, the finance ministry issued a statement detailing plans for a major GST revamp. The reforms will focus on three main pillars-- structural reforms, rate rationalisation and ease of living for taxpayers. The proposals have been sent to a Group of Ministers (GoM) formed by the GST Council for further examination.

 

Structural reforms will focus on correcting inverted duty structures, resolving classification disputes, and providing greater stability and predictability in tax rates. Rate rationalisation will include a reduction in taxes on common man and aspirational goods, a move towards a two-slab system (standard and merit).

 

"...Reduction of slabs: Essentially move towards simple tax with 2 slabs, standard and merit. Special rates only for select few items,” the release said. It further added that the end of compensation cess has created fiscal space, providing greater flexibility to rationalise and align tax rates within the GST framework for long-term sustainability.