India could soon witness the biggest transformation in its Goods and Services Tax (GST) system since its inception eight years ago. According to a report by The Economic Times, the Prime Minister’s Office (PMO) has given an in-principle nod for a comprehensive overhaul of the GST structure, setting the stage for a potential breakthrough during the upcoming GST Council meeting scheduled in August.
This green light from the topmost office comes as the Finance Ministry intensifies internal consultations and prepares to reach out to state governments to build a national consensus for the reforms.
Slab Restructuring at the Core
At the heart of this reform is the proposal to streamline GST tax slabs. Currently, GST operates with five primary tax rates — nil, 5%, 12%, 18%, and 28% — along with two special rates of 0.25% and 3% for select items such as precious metals.
A major change under consideration is the removal of the 12% slab, which accounts for around 19% of goods. In the proposed plan, items under this category could either move down to the 5% slab or up to the 18% slab, depending on the nature and necessity of the product.
“A simplified slab structure will reduce confusion and make GST more transparent and efficient,” said a senior government official involved in the discussions.
The 5% slab currently includes about 21% of taxable goods, while the 18% slab covers nearly 44%. Only around 3% of goods fall under the highest 28% slab, which includes luxury and sin goods.
Compliance and Clarity in Focus
Another key focus of the reform is to make compliance easier for small businesses and improve the overall tax experience for consumers. The complexity of multiple rates and input tax credit challenges have long been flagged by industry bodies, especially MSMEs.
The Centre now seems determined to push these long-awaited changes forward, backed by stable macroeconomic indicators and growing momentum for pro-business reforms.
A group of ministers had previously been tasked with GST rate rationalization, but progress has been slow. With the PMO’s support, these reforms now appear to have both political and administrative momentum.
A Boost for Global Trade Ambitions
This GST restructuring is also being seen as a strategic move to prepare India for upcoming free trade agreements (FTAs) with several developed countries. A more streamlined tax regime will make it easier for Indian companies to scale operations, improve cost competitiveness, and leverage global trade opportunities.
“A less complicated GST will enhance India’s image as an investment-friendly nation and make compliance smoother for exporters,” said an official aware of the reform blueprint.
Compensation Cess and Future Directions
Meanwhile, the compensation cess, which continues to be levied on items like cigarettes, aerated drinks, and large cars, remains a key element of GST revenue. Originally intended to offset state revenue losses post-GST rollout, the cess was extended beyond its original five-year term due to Covid-related revenue shortfalls.
During the pandemic, the Centre borrowed ₹2.69 lakh crore on behalf of the states, with the cess extended until March 31, 2026 to repay this amount.
A separate group of ministers is reportedly examining how to manage surplus funds in the cess pool and whether these funds could be redirected to specific economic priorities or returned to states.
What Happens Next?
The final reform proposal is expected to be presented before the GST Council in August, after the conclusion of the monsoon session of Parliament. The Council, which comprises finance ministers from all states and is headed by the Union Finance Minister, holds the authority to approve any changes to the GST framework.
If consensus is achieved, these changes could be rolled out in phases, with an emphasis on smooth transition and minimal disruption for businesses and consumers.
With the PMO’s nod and a clear sense of urgency, India appears poised to rewrite the GST rulebook for the first time in nearly a decade. For millions of businesses and consumers, this could mean simpler rates, easier compliance, and a tax system more in tune with modern economic realities.
All eyes are now on the August GST Council meeting, where these sweeping reforms could get their formal seal of approval.
