Moving goods from 12% GST slab to cost Rs 80,000 cr in revenue annually

These proposals will be reviewed by the Group of Ministers (GoM) on rate rationalisation

The Centre’s proposal to move a majority of goods and services from the 12 percent Goods and Services Tax (GST) slab to 5 percent may lead to an annual revenue loss of around Rs 80,000 crore, according to government estimates.

Sources indicated that the shortfall will be partly compensated by retaining the highest slab at 40 percent for demerit goods and luxury automobiles.

“The additional GST on luxury and sin goods, which will be in the 40 percent rate, will compensate for the GST revenue loss. With the cess portion being merged into GST, categories like tobacco, cigarettes, aerated drinks and high-end vehicles are expected to bring in additional revenues to the combined GST kitty,” a government official told Moneycontrol.

Items under consideration for reduction include butter, ghee, processed food, almonds, mobiles, fruit juice, preparations of vegetables, fruits and nuts, pickles, murabba, chutney, jam and jelly, along with packed coconut water and umbrellas. Tractors are also likely to shift to the 5 percent bracket from 12 percent. Some construction-related work contracts and multimodal transport services (such as road–rail or road–sea logistics) could also move to the lower slab, from the existing 12 percent.

Highest GST slab

At the same time, sin and luxury goods are set to remain in the highest GST bracket. Aerated and sugary drinks, tobacco, cigarettes and large cars with engines above 1,200 cc are unlikely to see any relief.

“The proposal from the Centre is to keep aerated beverages at 40 percent. While only small cars will move to the 18 percent tax rate, cars with engines above 1,200 cc are likely to move to the highest slab of 40 percent. The Group of Ministers (GoM) on rate rationalisation will take up these proposals in its meeting on August 21,” another senior government official told Moneycontrol.

The GoM will examine the rationalisation plan on August 21 and submit report to the GST Council for approval. Officials said the exercise is aimed at simplifying the indirect tax structure, easing compliance for businesses, and aligning tax rates more closely with consumption patterns.

These proposals will be reviewed by the GoM on rate rationalisation, headed by Bihar Deputy Chief Minister Samrat Choudhary and comprising finance ministers from Karnataka, West Bengal and Kerala, before being taken up by the GST Council.

If approved, the rejig would lower levies on a wide range of consumer-facing products, agriculture-related and household segments, while safeguarding revenues by retaining the highest rate on sin goods. The Centre has proposed reducing the slabs to just two — 5 percent and 18 percent — while keeping select demerit goods under the 40 percent bracket.