GST Rationalisation Could Put Extra Cash In Shoppers’ Pockets

The centre is considering a major overhaul of the Goods and Services Tax (GST) structure by cutting down the number of slabs to just two — five per cent and 18 per cent — according to sources.

If the plan goes through, nearly 90 per cent of goods currently taxed at 28 per cent will be brought down to the 18 per cent bracket. Similarly, almost all products in the 12 per cent slab will move to the five per cent category.

However, items considered luxury or harmful, such as cigarettes, gutkha, and tobacco, will attract a much higher rate of 40 per cent. Government sources said this category will be restricted to only five to seven goods and will not include items like refrigerators, air conditioners, and washing machines.

Once the proposed rationalisation of GST rates gets implemented, most daily-use and household items might become cheaper for consumers if the goods or service provider passes on the benefit to consumers.

Once these changes are implemented, nearly all goods and services in the 12 per cent slab will move to five per cent, and many in the 28 per cent slab (like appliances and electronics) might move to 18 per cent.

“This could mean that common groceries, household products, and many consumer durables might experience a price drop and could directly benefit the average shopper,” says Abhishek Kumar, a Securities and Exchange Board of India-registered investment advisor (Sebi RIA), and founder and chief investment advisor of SahajMoney, a financial planning firm.

Middle-class Families May See Relief In Monthly Budgets

If the goods and service providers chose to pass on the reduction in GST to end consumers, then the rationalisation of GST rates would leave more money in the hands of consumers, especially for middle-class families.

“Once these rates are implemented, then monthly household expenses might decrease, which could help families either save or spend more on other needs,” says Kumar.

Petroleum products will continue to remain outside the GST framework, while sectors such as diamonds and precious stones — which are both labour-intensive and export-oriented — will retain their present tax structure.

GST Overhaul Targets Stability In Revenue, Relief For Consumers

Officials have said that the overall tax incidence is expected to remain at 88 per cent, similar to the existing system. They also pointed out that the restructured rates are likely to spur consumption, which could balance out any immediate revenue loss from lower tax brackets.

Data from the Union Ministry of Finance shows that a bulk of GST collections, close to 67 per cent, currently comes from items in the 18 per cent slab, while the 28, 12, and five per cent categories account for 11, five, and seven per cent of the revenue, respectively.

The proposal surfaced shortly after Prime Minister Narendra Modi, in his Independence Day address, promised GST reforms that would deliver a “double Diwali” for citizens. The focus, he said, would be on rationalising tax rates to benefit farmers, students, women, the middle class, and other sections of society.

Alongside this, the Prime Minister also announced an indigenous “Sudarshan Chakra” defence system to be ready by 2035 and a national deep-sea exploration mission aimed at energy self-reliance.

The final call on the GST changes will be taken by the GST Council, which comprises Union and state finance ministers, when it meets in September or October.

The timing of the announcement is also symbolic. GST has just completed eight years since its rollout in 2017, when it replaced a complex web of state and central levies.