GoM approves Centre's GST rate rationalisation proposal, backing the proposed two-slab structure

This marks the first major step in implementing the "next-generation GST" reforms that Prime Minister Narendra Modi had announced in his Independence Day 2025 address.

The Group of Ministers (GoM) on Goods and Services Tax (GST) rate rationalisation has approved the Centre’s push for a simplified two-slab tax system.

Bihar Deputy Chief Minister Samrat Choudhary said on August 21 that the GoM has accepted the proposal to scrap the existing 12 percent and 28 percent tax rates and move towards a dual structure of 5 percent and 18 percent. The Centre’s proposal will now be placed before the GST Council during its next meeting, scheduled in September, which will be attended by ministers from Centre and all the states.

This marks the first major step in implementing the "next-generation GST" reforms that Prime Minister Narendra Modi had announced in his Independence Day 2025 address.

What happens to goods in 12 and 28 percent slabs

A detailed, item-wise discussion on how goods and services will be shifted from the 12 percent and 28 percent slabs to the new system will take place at the upcoming GST Council meeting. The GoM has also sought an amendment to increase the maximum GST levy to 40 percent, ensuring that the overall tax burden on luxury and sin goods remains unchanged.

States seek compensation guarantees

Not all states are convinced, and West Bengal’s GST Council member Chandrima Bhattacharya has said that several states expressed concerns about potential revenue losses from the rationalisation exercise. States have demanded that the Centre provide compensation if their revenues dip after the changes are rolled out.

Uttar Pradesh Finance Minister Suresh Khanna said the Centre’s proposal to scrap the 12 percent and 28 percent GST slabs has been welcomed as it will benefit the common man. He added that a 40 percent rate will continue to apply on luxury vehicles and sin goods. However, since revenue collections are likely to be impacted, states have demanded compensation. Bhattacharya noted that 5–7 items would remain under the 40 percent GST slab and stressed that an additional duty above 40 percent may be required to maintain the existing tax incidence.

The Group of Ministers on rate rationalisation includes ministers from Kerala, Uttar Pradesh, Rajasthan, West Bengal, Bihar, and Karnataka.

On August 20, Finance Minister Nirmala Sitharaman met the Group of Ministers (GoMs) on compensation cess, health and life insurance, and rate rationalization, and explained the necessity for the tax reforms. "The rate rationalisation will provide greater relief to the common man, farmers, the middle class and MSMEs, while ensuring a simplified, transparent and growth-oriented tax regime," FM Sitharaman said.