Centre sends proposal for two tax rates across all goods to GST Council

New Delhi, Aug 15 The Finance Ministry on Friday sent its proposal to the GST Council for introducing two GST rates of 5 per cent and 18 per cent across all goods going forward, according to government sources.

Items that will be covered under the lower GST rate of 5 per cent will include essential farm items, health-related items, handicrafts and insurance. While the other goods, including manufactured products, will come under the 18 per cent slab.

However, sin goods such as cigarettes, tobacco, sugary drinks and pan masala will continue under the present higher GST tax bracket.

The government is of the view that this rationalisation of GST will give a big boost to consumption and spur growth in the economy.

The GST Council, which includes finance ministers of states, is likely to meet in September to approve the proposal

The proposal came after Prime Minister Narendra Modi said during his Independence Day address from the Red Fort that the next generation reforms in GST will be unveiled by Diwali, which will provide "substantial" tax relief to the common man and benefit small businesses.

Key areas identified for next-generation reforms include the rationalisation of tax rates to benefit all sections of society, especially the common man, women, students, middle class, and farmers.

Among the proposals is the reduction of taxes on items used by the common man and aspirational goods. This would enhance affordability, boost consumption, and make essential and aspirational goods more accessible to a wider population.

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, according to the ministry.

The correction of inverted duty structures is aimed at aligning input and output tax rates so that there is a reduction in the accumulation of input tax credit. This would support domestic value addition.

Another key proposal is to resolve classification issues to streamline rate structures, minimise disputes, simplify compliance processes, and ensure greater equity and consistency across sectors.

"The aim is also to provide long-term clarity on rates and policy direction to build industry confidence and support better business planning," according to the ministry.

PM Modi, in a bold Independence Day declaration, also announced the formation of a high-level task force to spearhead next-generation reforms across governance, taxation, and public service delivery.

"This Diwali, I am going to celebrate a double Diwali for you. The countrymen are going to get a big gift, there will be a drastic cut on GST on common household items," he said, signalling sweeping changes in the GST regime.

PM Modi emphasised the urgency of reviewing GST rates, calling it the "need of the hour".

"GST rates will be reduced drastically. Tax will be reduced for the common people," he declared.

The announcement comes as GST marks its eighth anniversary, having evolved into one of India's most significant post-independence tax reforms. Since its launch in 2017, GST has unified the country's indirect tax structure and significantly improved the ease of doing business, especially for small and medium enterprises.

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