Group of Ministers on GST okays simpler tax structure: Nod for scrapping 12% and 28% slabs

India’s long-promised overhaul of the Goods and Services Tax (GST) has moved closer to reality, with a panel of state ministers on Thursday agreeing to cut the number of tax slabs from four to two.

The Group of Ministers (GoM) on rate rationalisation endorsed the Centre’s plan to introduce a simpler structure, replacing the current 5 per cent, 12 per cent, 18 per cent and 28 per cent rates with just two main slabs: 5 per cent and 18 per cent. Finance officials said the reform, dubbed “GST 2.0,” is designed to ease compliance for businesses and reduce the burden on households.

Two slabs to replace four

Under the new structure, the 12 per cent and 28 per cent categories will be scrapped. Most goods and services will fall under either 5 per cent or 18 per cent, while a higher 40 per cent rate will continue for “sin goods” such as tobacco and certain luxury items. Luxury cars are also set to be brought under this highest bracket.

According to the plan, 99 per cent of goods currently taxed at 12 per cent will shift down to 5 per cent. Nearly 90 per cent of items in the 28 per cent slab, including household appliances and televisions, will move to 18 per cent, potentially lowering prices for middle-class consumers.

The GoM was chaired by Bihar deputy chief minister Samrat Choudhary and included ministers from Uttar Pradesh, Rajasthan, West Bengal, Karnataka and Kerala. After reviewing detailed proposals from the Finance Ministry, the panel reached what officials described as a broad agreement.

Savings for households

The Centre has pitched the reform as pro-consumer, with everyday items such as medicines, processed food, footwear and clothing expected to attract just 5% GST. The government said this would bring tangible relief to households, farmers and small businesses.

Finance minister Nirmala Sitharaman, addressing the GoM earlier, said: “The rate rationalisation will provide greater relief to the common man, farmers, the middle class and MSMEs, while ensuring a simplified, transparent and growth-oriented tax regime.”

Insurance exemption under review

The GoM also discussed a separate proposal to exempt health and life insurance premiums from GST. Officials estimate such a move could cost the exchequer nearly Rs 9,700 crore annually. While most states backed the plan, they asked for safeguards to ensure that insurers pass on the benefit to policyholders rather than keeping premiums unchanged.

Next steps

The recommendations will now be sent to the GST Council, chaired by Sitharaman and including representatives from all states. The Council is expected to take a final decision at its upcoming meeting.

If approved, the shift to a two-slab system would mark the most significant reform since GST was introduced in 2017, a change that the government argues will simplify India’s indirect tax architecture while easing costs for both businesses and consumers.