Centre Suggests Only Two Tax Slabs of 5% and 18%, Many Items May Become Cheaper

The revised system is expected to be implemented by Diwali this year.

According to high-placed sources, the Centre has sent this proposal to the Group of Ministers (GoM) formed to rationalize GST rates, eliminating the existing 12% and 28% tax slabs.

Under the proposed revised GST framework, apart from the two tax slabs, a special 40% rate has been suggested for luxury and demerit goods.

 The GoM will now discuss this proposal and present its recommendations to the GST Council, which is expected to meet next month.

Currently, essential food items are taxed at 0%, daily use items at 5%, standard items at 12%, electronics and services at 18%, and luxury or demerit goods at 28%.

Sources indicate that in the revised framework, set to replace the existing indirect tax system by Diwali, only two tax rates—5% and 18%—have been proposed.

Once the GST Council, the highest decision-making body for GST matters, approves this proposal, 99% of items currently under the 12% slab will shift to the 5% slab. Similarly, around 90% of goods and services currently taxed at 28% will move to the 18% slab under the new system.

Sources revealed that the special 40% tax rate will apply to only seven items. Tobacco products will also fall under this rate, but the total tax burden will remain at the current 88%. Online gaming, considered a demerit product, is also proposed to be taxed at 40%.