India to simplify GST: Finance Ministry proposes two-slab system with special rates only for select items

The finance ministry on Friday said it has proposed a two-slab GST rate structure to the Group of Ministers (GoM), along with special rates for select items. Prime Minister Narendra Modi in his 79th Independence Day has announced that GST reforms which will lower tax burden substantially and benefit small industries will be implemented by Diwali.

Soon after the announcement, the finance ministry said the Centre's proposal shared with the GoM rests on three pillars -- structural reforms, rate rationalisation and ease of living.

The proposal includes reduction of taxes on common man items and aspirational goods.


Also Read: Govt mulls GST simplification with two slabs of 5% and 18%

With regard to reduction in slabs, the Centre has proposed moving towards simple tax with two slabs -- standard and merit. Special rates would apply only on select few items. Currently, GST is a 4-tier structure of 5, 12, 18 and 28 per cent.

The GST Council, chaired by Finance minister Nirmala Sitharaman and comprising state ministers, is expected to meet in September to discuss the GoM proposal on rate rationalisation.

The ministry said the end of compensation cess has created fiscal space, providing greater flexibility to rationalise and align tax rates within the GST framework for long-term sustainability.

ALSO READ: Next-gen GST reforms by Diwali, will reduce tax on every day use items: PM Modi

Key changes proposed by the Finance Ministry:

• Reduction of taxes on common man items and aspirational goods: This would enhance affordability, boost consumption, and make essential and aspirational goods more accessible to a wider population.
• Reduction of slabs: Essentially move towards simple tax with 2 slabs – standard and merit. Special rates only for select few items.
• Compensation Cess: The end of compensation cess has created fiscal space, providing greater flexibility to rationalise and align tax rates within the GST framework for long-term sustainability.
• Inverted duty structure correction: The correction of inverted duty structures to align input and output tax rates so that there is a reduction in the accumulation of input tax credit. This would support domestic value addition.
• Resolving classification issues: Resolve classification issues to streamline rate structures, minimise disputes, simplify compliance processes, and ensure greater equity and consistency across sectors.
• Stability and Predictability: Provide long-term clarity on rates and policy direction to build industry confidence and support better business planning.
• Registration: seamless, technology-driven, and time-bound, especially for small businesses and startups.
• Return: Implement pre-filled returns, thus reducing manual intervention and eliminating mismatches.
• Refund: Faster and automated processing of refunds for exporters and those with inverted duty structure.

FICCI (Federation of Indian Chambers of Commerce & Industry) applauded the announcement of a comprehensive GST review after 8 years. " It will reduce the tax burden on consumers and businesses and enhance Ease of Doing Business. The commitment to reduce compliances, eliminate redundant regulations & create a dedicated Reform Task Force will strengthen India's position as a global manufacturing hub," said the organisation's president Harsha Vardhan Agarwal.

GST has evolved into more than just a tax system; it has become a macroeconomic indicator. Policymakers increasingly rely on monthly GST trends to assess sectoral growth, business sentiment, and supply chain resilience. From transport logistics to retail consumption, GST footprints reflect ground-level economic behaviour.In 2024-25, gross GST collections hit a record Rs 22.08 lakh crore, marking a year-on-year growth of 9.4 per cent. This rise reflects the growing formalisation of the economy and improved tax compliance.

On 1 July 2025, the Goods and Services Tax (GST) completed eight years since its rollout on July 1, 2017. The implementation of GST replaced a maze of indirect taxes with a single, unified system. It made tax compliance easier, reduced costs for businesses, and allowed goods to move freely across states. By improving transparency and efficiency, GST helped lay the foundation for a stronger, more integrated economy.