In a big announcement during his Independence Day speech, Prime Minister Narendra Modi revealed that major changes to the Goods and Services Tax (GST) are on the way and just in time for Diwali. The government has proposed a simplified two-slab GST structure, which could make many everyday items more affordable. Furthermore, luxury and sin goods will have their own separate tax rates, aiming to strike a better balance between ease for consumers and revenue for the government.

GST May Soon Get Simpler — Just Two Tax Slabs Ahead

Currently, GST is divided into four tax rates: 5 per cent, 12 per cent, 18 per cent, and 28 per cent. But that could soon change. Under the proposed revamp, the government plans to reduce the structure to just two main slabs — 5 per cent and 18 per cent.

If implemented, this would bring major relief to consumers. Nearly 99 per cent of the items currently taxed at 12 per cent are expected to move to the lower 5 per cent slab. Meanwhile, about 90 per cent of goods and services in the 28 per cent category may shift to 18 per cent, making many products more affordable.

Simplified GST Slabs: What’s Changing

Under the proposed GST revamp, the tax structure will be streamlined into just two main slabs — 5 per cent and 18 per cent. This means:

– 99 per cent of items currently taxed at 12 per cent will move down to the 5 per cent slab

– Nearly 90 per cent of goods and services currently under the 28 per cent rate will be brought down to 18 per cent

What About Sin Goods Like Cigarettes and Pan Masala?

Luxury and sin goods such as cigarettes, pan masala, cigars, and other tobacco products will continue to attract the highest GST rate of 28%. On top of that, these products also carry a compensation cess, plus duties under the Central Excise Act. This cess helps the central government compensate states for any revenue losses caused by the introduction of GST.

New 40% GST Slab for Tobacco Products Likely

A new 40 per cent GST rate has been proposed for seven specific items, including tobacco products like cigarettes and cigars. This new slab would replace the existing 28 per cent GST + compensation cess, simplifying the tax structure by removing the cess altogether.

The GST Council, headed by Finance Minister Nirmala Sitharaman, is expected to review and possibly approve these changes in its upcoming meeting in September. Since GST was rolled out in July 2017, most of the tax revenue has come from the 18 per cent slab (65 per cent). In comparison, the 28 per cent slab contributes 11 per cent, the 12 per cent slab just 5 per cent, and the 5 per cent slab about 7 per cent of total collections.