Following Prime Minister Narendra Modi’s announcement of new GST reforms and a promise of cutting the price of everyday-use items, the Centre provided more details on these proposed changes to indirect taxes.
Among the key highlights provided by the Finance ministry, the most important one is the reduction of tax slabs to just TWO—a lower ‘standard’ slab and a higher ‘merit’ slab. Special tax rates would only apply to a select few items.
The current system has five tax slabs—0 per cent, 5 per cent, 12 per cent, 18 per cent, and 28 per cent. Apart from these, precious metals carry special rates like 0.25 per cent and 3 per cent.
The proposed change brings simplicity back to the indirect taxation system.
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Here is the list of reforms in the tax structure proposed by the Centre, according to the Ministry of Finance.
Structural reforms
- Inverted duty structure correction: The correction of inverted duty structures to align input and output tax rates so that there is a reduction in the accumulation of input tax credit. This would support domestic value addition.
- Resolving classification issues: Resolve classification issues to streamline rate structures, minimise disputes, simplify compliance processes, and ensure greater equity and consistency across sectors.
- Stability and Predictability: Provide long-term clarity on rates and policy direction to build industry confidence and support better business planning.
Rate rationalisation
- Reduction of taxes on common-man items and aspirational goods: This would enhance affordability, boost consumption, and make essential and aspirational goods more accessible to a wider population.
- Reduction of slabs: Essentially move towards simple tax with 2 slabs—standard and merit. Special rates only for select few items.
- Compensation cess: The end of compensation cess has created fiscal space, providing greater flexibility to rationalise and align tax rates within the GST framework for long-term sustainability.
Ease of living reforms
- Registration: seamless, technology-driven, and time-bound, especially for small businesses and startups.
- Return: Implement pre-filled returns, thus reducing manual intervention and eliminating mismatches.
- Refund: faster and automated processing of refunds for exporters and those with inverted duty structure.
“The GST Council, when it meets next, will deliberate on the recommendations of GoM, and every effort will be made to facilitate early implementation so that the intended benefits are substantially realised within the current financial year,” the ministry said.
The Finance ministry also reaffirmed its move to make GST into a “simple, stable, and transparent tax system—one that supports inclusive growth, strengthens the formal economy and enhances Ease of Doing Business (EoDB) across the country.”
The 56th GST Council meeting is expected to convene in early September, just weeks after Modi’s “GST bonanza” announcement.