GST rates to come down drastically! 99% of items in 12% bracket may move to 5%; here's how you will benefit

New GST tax rates soon! Come this Diwali, you will have to pay much lower indirect taxes on several items of daily use, thanks to next-generation Goods and Services Tax (GST) reforms set to be unveiled by the Modi government . In his Independence Day speech, PM Modi announced that as a 'Diwali gift', the GST burden will come down for the common man.

Soon after PM Modi's speech, the finance ministry announced that it has suggested a two-tier GST rate system to the Group of Ministers (GoM), including special rates for certain items. This proposal is part of the government's plan to introduce "next generation" GST reforms within the current financial year, aiming to reduce the tax burden on everyday items.

The Centre has recommended to a panel of state finance ministers that the GST framework should consist of only two categories: 'standard' and 'merit'. Additionally, specific items may have special rates applied.

Presently, the GST system has four tax tiers of 5, 12, 18, and 28 percent, with essential items either exempt or taxed at lower rates, while demerit and luxury items fall under the highest tier.

Furthermore, a compensation cess is imposed at various rates on demerit and luxury goods like pan masala and cars. As the compensation cess regime is set to conclude on March 31, 2026, the GST Council will need to establish a method for determining tax rates on goods currently subject to this cess.

The GST Council, led by Finance Minister Nirmala Sitharaman and including state ministers, is anticipated to convene in September to review the GoM's proposal on rate rationalization.

GST reforms: What PM Modi announced on Independence Day
During his 79th Independence Day speech, PM Modi announced upcoming 'next generation' GST reforms designed to significantly reduce the tax burden and aid small industries, presenting these lower taxes as a Diwali gift to the public.

"This Diwali, I am going to make it a double Diwali for you... Over the past eight years, we have undertaken a major reform in GST... We are bringing next-generation GST reforms. This will reduce the tax burden across the country,” he said.

GST revamp: How will it benefit you?

• According to a PTI report, the GST structure and slab rates are set to undergo a major revamp with only two tax slabs for most things.
• In the revamped GST regime proposed by the Centre, about 90% of taxable items currently in the 28% bracket are likely to be moved to the 18% slab, while 99% of items in the existing 12% slab may be shifted to the 5% bracket, government sources told PTI.
• The new structure is expected to feature two main rates — 5% and 18% — along with a special 40% rate for luxury and sin goods.
• The finance ministry revealed that the Centre has presented its GST proposal to the GoM, focusing on structural reforms, rate rationalisation, and improving ease of living.
• The proposal suggests reducing taxes on everyday items and aspirational goods, simplifying the tax system to two slabs with special rates for certain items, which would increase consumption and make goods more affordable.

GST revamp: The ease of business for industry
The GST reforms aim to minimize disputes related to classification, address inverted duty structures in certain sectors, ensure more stable rates, and improve the ease of doing business.

These initiatives are intended to bolster key economic sectors, boost economic activity, and facilitate sectoral growth. The structural reforms are designed to provide stability and predictability by offering "long-term clarity on rates and policy direction," which will build industry confidence and aid in better business planning.

On the 'ease of living' front, the finance ministry's proposals include seamless, technology-driven GST registration, particularly for small businesses and startups.

They also recommend the introduction of pre-filled GST returns and quicker, automated processing of refunds for exporters and those affected by inverted duty structures.

The ministry noted that the end of the compensation cess has created fiscal space, allowing for greater flexibility in rationalizing and aligning tax rates within the GST framework for long-term sustainability.

When will GST rates come down?
The finance ministry has said that the GST Council will discuss the GoM's recommendations in its upcoming meeting, aiming for swift implementation to ensure the benefits are realized within the current financial year.

PM Modi in his speech has indicated that the benefit could come as early as this year’s Diwali which falls in end-October.

The ministry emphasized that, in the spirit of cooperative federalism, the central government is dedicated to collaborating closely with the states. "In the upcoming weeks, it will work towards building a broad consensus with the states to implement the next wave of reforms," stated the finance ministry.

Bihar Deputy Chief Minister Samrat Chaudhary leads a seven-member state-ministerial panel, known as the GoM, focused on GST rate rationalization. This panel is responsible for recommending rate adjustments and correcting the inverted duty structure to simplify the rate framework, reviewing the GST exemption list, and increasing revenues.