GST Council adopts two-slab structure; Know the key reforms aimed at ease of living and growth

New Delhi: : Finance Minister Nirmala Sitharaman on Wednesday announced a major simplification of the Goods and Services Tax (GST) structure, consolidating the existing 12% and 18% slabs into a dual rate of 5% and 18%, with sin goods taxed at 40%.

The reform, described as part of the "Next-Generation GST" initiative, aims to boost affordability, consumption, and economic efficiency.

Focus on common man and middle class

"In common man and middle class items, there is a complete reduction. This reform is not just about rationalising rates. It's also on structural reforms. It's also about ease of living, so that businesses can conduct their operations with the GST with great ease. We've reduced the slabs. There shall be only two slabs, and we are also addressing the issues of compensation cess," Sitharaman said at a late evening press conference.

She added, "These reforms have been carried out with a focus on the common man. Every tax on the common man's daily use items has undergone a rigorous review, and in most cases, the rates have come down drastically. Labour-intensive industries have been given good support. Farmers and the agriculture sector, as well as the health sector, will benefit."

Simplification for stability and predictability

"We have corrected inverted duty structure problems, we've resolved classification-related issues, and we've ensured that there will be stability and predictability about the GST. We've reduced the slabs. There shall be only two slabs, and we are also addressing the issues of compensation, ease of living, simplifying registration, return filing and refunds," Sitharaman said.

Items with reduced GST

Items now taxed at 5% include hair oil, toilet soap, soap bars, shampoos, toothbrushes, toothpaste, bicycles, tableware, kitchenware, and other household articles.

Items moved to zero tax from 5% include ultra-high temperature milk, chena and paneer. All Indian breads, whether roti or paratha, are available at a nil rate.

Food items shifted from 12% or 18% to 5% include namkeen, bujjiya, sauces, pasta, instant noodles, chocolates, coffee, preserved meat, cornflakes, butter, and ghee.

A reduction from 28% to 18% applies to air conditioning machines, dishwashing machines, small cars, and motorcycles with engine capacity equal to or less than 350 cc.

Modi’s earlier announcement

In his Independence Day address, Prime Minister Narendra Modi had stated that next-generation GST reforms by Diwali would lower taxes on daily essentials, benefiting MSMEs, local vendors, and consumers, while stimulating growth and creating a more efficient, citizen-friendly economy.