India is on the verge of one of the most significant reforms in the Goods and Services Tax (GST) regime since its launch in 2017. The central government, through the Group of Ministers (GoM) on rate rationalisation, is preparing proposals to simplify GST into a two-rate system of 5% and 18%, CNBC-TV18 reported. The reform is expected to benefit healthcare, daily essentials, agriculture, textiles, and renewable energy sectors.
Healthcare Gets the Biggest Relief
At the forefront of the reform is the healthcare sector. All drugs and medicines currently taxed at 12% are likely to move to the 5% bracket, significantly easing the cost burden on patients. Additionally, around 30 cancer drugs and several medicines for rare diseases are expected to become completely tax-free. Medical-grade oxygen, iodine, potassium iodate, surgical instruments, gloves, and diagnostic kits could also see their GST reduced to 5%.
Daily Essentials and Consumer Durables to Become Affordable
The proposed changes aim to lower taxes on items that impact households the most. Durables such as washing machines, air conditioners, and refrigerators are expected to benefit from reduced rates. Food items including butter, ghee, dry fruits, confectionery, juices, ice cream, cereals, and packed drinking water will also see lower GST, easing household budgets.
Textiles and handicrafts, from synthetic yarns and carpets to terracotta tableware and footwear priced below Rs 2,500, will attract only 5% GST. Everyday education supplies such as maps, atlases, sharpeners, pencils, crayons, exercise books, and geometry boxes are also set to become more affordable.
Agriculture, Renewable Energy, and Industry Benefits
The reforms extend to the agriculture sector as well. Fertiliser acids, bio-pesticides, micronutrients, drip irrigation systems, tractors, and their parts could see a reduction from 12–18% GST to just 5%. Renewable energy devices, including solar cookers and water heaters, are also expected to benefit from lower rates.
Economic Rationale Behind the Reform
The proposed rationalisation is not just about simplification. Analysts suggest that lower GST rates on commonly used items may help stimulate domestic consumption, especially in the wake of external shocks like the 50% U.S. tariffs on Indian goods. The reforms are expected to strengthen India’s economic resilience and maintain fiscal stability.
GST has steadily grown into India’s second-largest source of revenue, contributing around 30% of total collections and about 2.5% of GDP in FY2024-25. Experts believe that rate rationalisation will not only simplify tax administration but also consolidate GST as a robust pillar of government revenue.
Next Steps
The new GST proposals will be discussed at the upcoming GST Council meeting on 3–4 August, chaired by the Union Finance Minister. Prime Minister Narendra Modi first announced the two-rate framework as a “Diwali bonanza” during his Independence Day speech on August 15, signaling the government’s intent to make essentials more affordable for Indian households.
