GST Reforms: Check Out Item-Wise Proposed Rates To Be Taken Up In Next Meeting

 

GST Reforms 2025: Item-Wise Proposed Rates for the 56th GST Council Meeting

Introduction

The Goods and Services Tax (GST) system in India, introduced in 2017, is set for a major overhaul with the upcoming 56th GST Council meeting scheduled for September 3–4, 2025, in New Delhi. The meeting, chaired by Union Finance Minister Nirmala Sitharaman, aims to simplify the current multi-tier tax structure into a two-slab system of 5% and 18%, with a special 40% rate for luxury and sin goods. This “GST 2.0” reform, announced by Prime Minister Narendra Modi as a “Diwali gift” during his Independence Day 2025 speech, promises to reduce the tax burden on consumers, streamline compliance for businesses, and boost economic growth. This blog details the proposed item-wise GST rate changes, key reform highlights, and their potential impact, drawing on recommendations from the Group of Ministers (GoM) on Rate Rationalisation.

Background of GST Reforms

Since its inception, GST has operated with five main slabs—0%, 5%, 12%, 18%, and 28%—along with special rates of 0.25% and 3% for precious metals and a compensation cess on luxury and demerit goods. The current structure, while unifying indirect taxes like VAT and service tax, has faced criticism for its complexity, classification disputes, and inverted duty structures that lock up working capital. The proposed reforms aim to address these issues by:

• Eliminating the 12% and 28% slabs.
• Shifting 99% of items in the 12% slab to 5% and 90% of items in the 28% slab to 18%.
• Introducing a 40% rate for select luxury and sin goods, replacing the 28% plus cess structure.
• Simplifying compliance through technology-driven measures like pre-filled returns and automated refunds.

These changes, expected to be finalized by Diwali 2025, are designed to make essentials more affordable, support Micro, Small, and Medium Enterprises (MSMEs), and align with India’s Atmanirbhar Bharat (self-reliant India) goals.

Proposed Item-Wise GST Rate Changes

The Group of Ministers, led by Bihar Deputy Chief Minister Samrat Chaudhary, has reviewed the Centre’s proposals and forwarded recommendations for discussion at the 56th GST Council meeting. Below is a detailed breakdown of the proposed item-wise rate changes based on available information:

Essential and Daily-Use Items (Proposed: 0% or 5%)

• Food Items:
  • Loose Paneer, Pizza Bread, Khakhra, Chapati, Roti: Currently taxed at 5% or 18%, these staples are proposed to be exempt (0%) to reduce costs for households.
  • Unpacked/Unbranded Flour, Food Grains: Continue to attract 0% GST, reinforcing affordability of essentials. Pre-packaged versions may remain at 5%.
  • Millet Flour (70% Millet Composition): Proposed to remain at 0% if sold loose and 5% if pre-packaged.
  • Fortified Rice Kernels (HSN 1904): Already reduced to 5% from 18% (effective January 16, 2025).
• Health and Education:
  • Gene Therapy (HSN Code): Exempted from GST (effective January 16, 2025).
  • Health and Life Insurance Premiums: Currently taxed at 18%, proposed to be reduced to 0% or 5% to improve affordability and coverage.
  • Education Services: Continue at 0% GST, ensuring access to essential services.
• Agricultural Products:
  • Fertilizer Acids and Bio-Pesticides: Proposed to be reduced to 5% from higher rates to support farmers.
  • Molasses: Already reduced from 28% to 5% in 2024.
• Handicrafts: Proposed to be taxed at 5% to promote traditional industries.
• Other Essentials:
  • Bicycles, Feeding Bottles, Utensils, Pencils, Tooth Powder: Currently at 12%, proposed to shift to 5%.
  • Jute/Cotton Handbags, Footwear (< ₹1,000): Proposed to move from 12% to 5% to make affordable goods cheaper.

Aspirational and Consumer Goods (Proposed: 18%)

• White Goods:
  • Air Conditioners, TVs, Refrigerators, Washing Machines: Currently taxed at 28%, proposed to be reduced to 18%, making them more affordable for the middle class.
• Automobiles:
  • Small Cars, Motorbikes, Auto Parts: Proposed to shift from 28% to 18%, boosting affordability and domestic manufacturing.
• Confectionery and Snacks:
  • Chocolates, Pastries, Ice Cream, Breakfast Cereals, Namkeens (e.g., Bhujiya): Currently at 18% or 12%, proposed to be uniformly taxed at 5% to simplify rates and reduce costs.
• Other Consumer Goods:
  • Toothpaste, Soap, Shampoo, Condensed Milk, Dried Fruits, Frozen Vegetables, Pasta, Jams, Furniture, Carpets, Umbrellas: Currently at 12% or 18%, most are proposed to move to 5%, with some (e.g., shampoo, furniture) potentially staying at 18% for consistency.

Luxury and Sin Goods (Proposed: 40%)

• Sin Goods:
  • Tobacco, Gutka, Pan Masala, Cigarettes, Beer: Proposed to be taxed at a flat 40%, replacing the current 28% plus cess structure.
• Luxury Goods:
  • Luxury Vehicles, High-End Motorbikes: Proposed to face a 40% rate, ensuring higher taxation on non-essential, high-value items.
• Online Gaming: Likely to be reclassified as a demerit good and taxed at 40%, aligning with sin goods.
• Limited Scope: Only 5–7 items are expected to fall under this slab to minimize the number of high-taxed goods.

Special Rates (Proposed: <1% or 3%)

• Precious Metals and Stones:
  • Gold, Silver: Continue at 3% GST.
  • Diamonds, Semi-Precious Stones: Continue at 0.25% GST.
• Concessional Rate (<1%): Proposed for a few items currently taxed below 5% but above 0%, ensuring minimal disruption.

Sector-Specific Proposals

• Drones:
  • Commercial Drones: Proposed to be uniformly taxed at 5% (currently 5%–28% based on usage), supporting India’s drone ecosystem.
  • Personal Use Drones: May remain at higher rates, with clarification on detachable camera drones.
• Real Estate:
  • Under-Development Properties: Continue at 5% (non-affordable) and 1% (affordable).
  • Building Materials: Range from 5% (sand, marble rubble) to 28% (cement), with some materials potentially moving to 18%.
• Railway and Hostel Services:
  • Platform Tickets, Retiring Rooms, Hostel Accommodation (< ₹20,000/month, ≤ 90 days): Continue to be exempt.

Key Highlights of the 56th GST Council Meeting Agenda

The 56th GST Council meeting will focus on three pillars: structural reforms, rate rationalisation, and ease of compliance. Key highlights include:

• Two-Slab Structure: Retaining 5% for essentials and 18% for most goods, with a 40% rate for luxury and sin goods, eliminating the 12% and 28% slabs.
• Inverted Duty Structure Correction: Aligning input and output tax rates to reduce Input Tax Credit (ITC) accumulation, benefiting sectors like manufacturing.
• Compliance Simplification:
  • Pre-Filled Returns: To reduce manual errors and mismatches.
  • Automated Refunds: Faster processing for exporters and those affected by inverted duty structures.
  • Seamless Registration: Technology-driven processes for startups and MSMEs.
• Sector-Specific Clarifications:
  • Online Gaming and Casinos: Standardizing GST treatment, potentially at 40%.
  • Health Insurance: Potential exemption or reduction to 5%.
  • Drones: Unified 5% rate for commercial use.
• Revenue Safeguards: States have raised concerns about potential revenue losses (estimated at ₹70,000–80,000 crore), prompting demands for compensation. The Centre expects higher consumption and compliance to offset losses.

Potential Impact of the Reforms

The proposed GST reforms are poised to have wide-ranging effects:

• Consumers: Lower rates on essentials (e.g., paneer, bicycles) and aspirational goods (e.g., TVs, small cars) will reduce costs, boosting affordability and consumption.
• Businesses: Simplified slabs and compliance measures will reduce classification disputes, lower compliance costs, and free up working capital, particularly for MSMEs.
• Economy: Reduced taxes are expected to stimulate demand, support domestic manufacturing, and align with India’s goal to become the third-largest economy.
• States: Revenue concerns persist, but the Centre’s focus on cooperative federalism and consultations aims to address these through consensus.
• Specific Sectors:
  • Agriculture: Lower rates on farm inputs like bio-pesticides will support farmers.
  • Healthcare: Exemptions for gene therapy and potential relief on insurance premiums will enhance accessibility.
  • Automobiles and Retail: Reduced rates on small cars and consumer goods will drive sales.

Challenges and Considerations

While the reforms promise significant benefits, challenges remain:

• Revenue Impact: Shifting items to lower slabs could lead to an estimated revenue loss of ₹1.8 trillion annually (0.5% of GDP), spread over FY26 and FY27. States demand compensation to mitigate this.
• Consensus Building: With states like Kerala expressing reservations, achieving agreement among GST Council members is critical. Home Minister Amit Shah is facilitating discussions to ensure consensus.
• Implementation Timeline: The target of Diwali 2025 requires swift decision-making and legislative amendments, with the GST Council’s September meeting being pivotal.
• Sin Goods Taxation: The 40% slab for sin goods like tobacco and online gaming may face pushback from industries, requiring careful calibration.

Conclusion

The proposed GST reforms for 2025 mark a transformative step toward a simpler, more consumer-friendly tax system in India. By reducing slabs to 5% and 18%, exempting essentials like loose paneer and roti, and lowering rates on aspirational goods like small cars and white goods, the reforms aim to ease the tax burden on the common man and boost economic activity. The introduction of a 40% slab for luxury and sin goods ensures higher taxation on non-essentials, while technology-driven compliance measures promise to streamline processes for businesses. As the GST Council prepares for its 56th meeting on September 3–4, 2025, stakeholders await a consensus that balances consumer relief with fiscal stability. If implemented, these “next-generation” reforms could redefine India’s indirect tax landscape, delivering a true Diwali gift to the nation.

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