GST Panel Proposes Scrapping 12% And 28% Tax Rates

The group of ministers (GoM) appointed for the upcoming Goods and Services Tax reforms have supported the proposal for two GST slabs and recommended the scrapping of 12% and 28% tax rates. The six-member GoM, chaired by Bihar Deputy Chief Minister Samrat Choudhary, accepted the plan to replace the current four-rate structure of 5, 12, 18, and 28% with two rates.

The new rate slabs will be 5% for merit goods and services and 18% for standard items. A higher 40% rate levy will remain on a small list of sin goods. 'Both the proposals of the Centre have been accepted by the GoM on the tax rate rationalisation,' Choudhary said after the GoM meeting.

The GST panel has pushed for the rate rationalisation and the GoM will present the final report to the GST Council. The GST Council is expected to meet on Sept 18-19, 2025 to discuss the likely changes on the tax rates.

Uttar Pradesh Finance Minister Suresh Kumar Khanna said the Centre's proposal also includes levying 40% tax on ultra luxury and sin goods. West Bengal Finance Minister Chandrima Bhattacharya said her state has proposed a levy on top of the 40% GST rate so that the current tax incidence on ultra luxury goods, like cars, and sin goods, is maintained.

Bhattacharya said the Centre's proposal did not mention the revenue loss that would accrue to the Centre and states after the implementation of the new GST slabs. Commenting on the GoM's acceptance of the tax reforms, Uday Pimpriker, National Leader In Direct Tax Services at EY told NDTV Profit in an exclusive interaction, "This was expected from the GoM. It's a good news at a broad level. This seems to be almost a done deal."

Pimpriker explained that the proposed GST slabs will now get debated, discussed, and whatever response or acceptance is given by the GST Council, will then become the legislation. "But, from a direction perspective, the recommendation has gone in to the Council. There are several aspects which the Council will need to discuss," he said.

"After the GST Council meeting in September, the notifications will need to be issued. It should be sooner rather than later. I don't think that they can afford to keep this kind of massive change and allow the existing rate to continue. That appears unlikely," added Pimpriker.

PM Modi on Independence Day 2025, announced the next-generation GST reforms, dubbed GST 2.0, expected by Diwali, to rationalize the existing tax rates. As per the Centre’s proposal, the existing 12% and 28% GST slabs will be scrapped entirely, while retaining the 5% and 18% tax slabs.

At present, Goods and Services Tax is a four-tier structure of 5, 12, 18 and 28%. While food items are either taxed at 0 or 5%, luxury and sin goods are taxed at 28%. On top of the 28% slab, cess at varied rates is levied on demerit and luxury goods, like cars.