New GST Reforms in India 2025, Tax Slabs, Reclassification of Items

Context: The Centre has proposed a major GST reform by eliminating the 12% and 28% tax slabs, retaining only 5% and 18% (with a few special rates below 1% and a 40% “sin tax”), to simplify the system and boost consumption.

Recent GST Reforms in India 2025 (Proposal)

Reduction of Slabs

• Current slabs: 0.25%, 3%, 5%, 12%, 18%, 28% + cess.
• Proposed slabs: <1% (for precious stones etc.), 5%, 18%, and 40% ‘sin tax’.
• 12% and 28% slabs to be eliminated.

Reclassification of Items

• 99% of items in 12% slab → shifted to 5% slab.
• 90% of items in 28% slab → shifted to 18% slab.
• Only 5–7 items (tobacco, gutka, luxury goods) to remain under 40% sin rate.

Impact on Consumption & Revenue

• Lower rates are expected to boost consumption, reduce tax evasion, and widen the tax net.
• Although revenue may dip initially, higher compliance and consumption are likely to raise revenues later.

Relief on Aspirational Items

• Proposal to reduce GST on items like air conditioners, white goods (currently at 28%) to 18% → making them more affordable.

Ease of Compliance

• Use of technology to simplify GST registration.
• Pre-filled returns to reduce errors and mismatches.
• Faster refunds to improve cash flow for businesses.

Overall Aim

• To implement a simpler, next-generation GST system.
• Promote ease of living and ease of doing business.
• Expected to be deliberated in the GST Council meeting (Sept–Oct 2025) and rolled out within this financial year.

About GST (Goods and Services Tax)

• Introduced: 1st July 2017, replacing multiple indirect taxes (VAT, excise, service tax, etc.).
• Nature: A destination-based, comprehensive indirect tax levied on the supply of goods and services across India.
• Structure:
  • CGST (Central GST) – collected by the Centre.
  • SGST (State GST) – collected by the States.
  • IGST (Integrated GST) – collected on inter-state supplies & imports.
• Key Features:
  • “One Nation, One Tax, One Market.”
  • Dual model – Centre and States share powers.
• Input Tax Credit (ITC) mechanism avoids cascading of taxes.

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