The stage is being set for what could be one of the most significant tax policy shifts in recent years, as the Goods and Services Tax Council prepares for a two-day meeting in September to decide on a sweeping set of reforms. According to government sources, the agenda will include removing the 12% GST slab, rationalising rates for health and life insurance, and reducing taxes on essential goods used in daily life. The proposals are designed not just to simplify India’s indirect tax system but also to boost affordability for consumers and give businesses, particularly smaller enterprises, a much-needed push.
The timing of the meeting is no accident. It follows Prime Minister Narendra Modi’s Independence Day address from the Red Fort, where he declared that the government was ready to launch a “next-generation GST reform” by Diwali. Framing the changes as a festive gift to the nation, he said, “Over the past eight years, we implemented a major GST reform and simplified taxes. Now, the time has come for a review. We have conducted it, consulted with states, and are set to introduce a ‘next-generation GST reform’.” His words signalled both urgency and political intent, setting high expectations for the upcoming Council discussions.
At present, GST is divided into five key slabs — 0%, 5%, 12%, 18%, and 28%. The 12% and 18% brackets are the standard rates, covering a wide array of goods and services. Nearly one-fifth of all taxable goods are currently in the 12% category, while the 18% slab captures almost half. The government’s proposal would remove the 12% slab entirely, shifting its items into either the 5% or 18% categories. This, officials argue, would reduce classification disputes, simplify compliance, and create a more predictable tax environment for both traders and consumers.
Among the most notable beneficiaries of the reform could be essential services like health and life insurance, which are likely to see reduced GST rates. Lower taxes on these sectors would not only make them more affordable for ordinary citizens but could also expand coverage and uptake, particularly in rural and semi-urban areas where penetration remains low. Other everyday goods, especially those considered necessities, are also on the list for tax cuts, a move expected to lower household expenses and potentially stimulate consumption ahead of the festive shopping season.
Prime Minister Modi has emphasised that this overhaul is aimed at delivering tangible benefits to ordinary people while also providing a shot in the arm to micro, small, and medium enterprises. “MSMEs will benefit, the daily needs products will be cheaper, and it will also give a boost to the economy,” he said, underscoring the belief that a simpler and fairer GST system could strengthen both demand and production.
Economists have pointed out that while the proposed changes could temporarily reduce tax revenues for the Centre and states, these losses might be offset over time by increased sales volumes, better compliance, and a broader tax base. A cleaner, more transparent GST structure is also likely to reduce evasion and litigation, which have been persistent challenges since the tax’s introduction.
Industry associations and state governments have long pushed for GST rationalisation, arguing that the current multi-tiered structure creates confusion and increases compliance burdens. If the September meeting results in a consensus, the new GST regime could be rolled out within weeks, marking one of the fastest policy turnarounds in recent years. For households, it could mean cheaper insurance premiums and lower prices on essential items before Diwali. For the economy, it could be the beginning of a new chapter in indirect tax reform, one that blends political timing with economic ambition.
