GST Council approves 2-slab structure, set for implementation by September 22

In a landmark decision aimed at simplifying India’s indirect tax regime, the Goods and Services Tax (GST) Council, chaired by Union Finance Minister Nirmala Sitharaman, on Wednesday approved a transformative two-slab GST structure during its 56th meeting held in New Delhi.

The new structure, set to be implemented by September 22 will replace the existing four-tier system with two primary tax slabs of 5% and 18%, alongside a special 40% rate for luxury and sin goods.

This reform, dubbed ‘GST 2.0’, is expected to reduce tax burdens, boost consumption, and enhance ease-of-doing business across the country. The revenue loss on account of GST rate rationalisation would be over Rs 47,000 crore.

The current GST system, introduced in July 2017, operates on four slabs —5%, 12%, 18% and 28%, with additional cess on certain items. Under the newly approved structure, the 12% and 28% slabs will be eliminated, with most goods and services reclassified into either the 5% "merit" category or the 18% "standard" category. A special 40% slab will apply to luxury items like ultra-premium cars, SUVs, tobacco, cigarettes, pan masala, and online gaming, which will be reclassified as demerit goods.

According to government sources, approximately 99% of items currently taxed at 12%—including essentials like ghee, nuts, packaged drinking water (20-liter cans), namkeen, medicines, medical devices, toothpaste, umbrellas, and bicycles—will shift to the 5% slab. Around 90% of goods and services in the 28% bracket will move to the 18% slab, making a wide range of products more affordable for consumers. 

The GST Council’s decision aligns with Prime Minister Narendra Modi’s Independence Day announcement, where he promised "next-generation GST reforms" as a "Diwali gift" to reduce the tax burden on the common man, farmers, the middle class, and Micro, Small, and Medium Enterprises. The reforms focus on three pillars: structural changes, rate rationalisation, and ease of living.