In a major move towards tax simplification, the Centre is likely to propose the elimination of the 12% Goods and Services Tax (GST) slab, sources have informed CNBC-TV18. This significant proposal is expected to be presented at the upcoming GST Council meeting, which may be convened by the end of June or early July.

The proposed reform would simplify the existing four-slab GST structure—which currently includes 5%, 12%, 18%, and 28% rates—into a three-tier system by scrapping the 12% slab. The idea is to either move essential items currently taxed at 12% to the 5% slab or shift less sensitive goods to the 18% bracket, thereby retaining revenue neutrality while improving compliance and administrative efficiency.

Centre’s Push for Rationalisation

According to sources, the Centre believes that the timing is appropriate given the consistently strong GST collections which have surpassed ₹2 lakh crore per month in recent quarters. This has created fiscal space to consider rationalisation without adversely affecting revenue.

“Having this discussion now in front of the Council makes sense as it keeps the revenue-neutrality intact and aligns with the long-term goal of tax simplification,” sources said. They added that the 12% slab has lost its relevance, and simplifying the structure is now both technically feasible and economically sound.

However, the proposal is still under discussion and will need unanimous approval from all members of the GST Council, which includes Union and state finance ministers. Any change in the GST regime must be collectively agreed upon, and cannot be unilaterally enforced by the Centre.

GoM Yet to Make Formal Recommendation

The Group of Ministers (GoM) on Rate Rationalisation, set up in September 2021 during the 45th GST Council meeting, has not yet formally recommended the removal of the 12% slab. Though the issue has been deliberated in past meetings, the GoM has so far focussed on item-specific rate changes and has not pushed for slab elimination.

Chaired by Bihar Deputy Chief Minister Samrat Chaudhary, the GoM’s wider mandate includes correcting inverted duty structures, simplifying tax rates, and reducing classification disputes. Despite several leadership changes, the panel has been active in streamlining the tax regime on a case-by-case basis.

Items Currently Under 12% GST Slab

Goods and services currently taxed at 12% include:

• Food & Beverages: jam, cheese, pasta, namkeens, mayonnaise, and 20-litre packaged drinking water

• Household Items: jute and cotton bags, wooden or cane furniture, bicycles, carpets

• Services: specified construction services, non-economy class air travel, mid-range hotel accommodations

The redistribution of these items into the 5% or 18% slabs could trigger price changes and potential inflationary impact, depending on the direction of the shift.

Experts Urge Caution on Transition

While many economists and tax experts agree that slab reduction will simplify compliance and reduce classification disputes, they also caution against a hasty transition.

Saurabh Agarwal, Tax Partner at EY India, said:

“Eliminating the 12% slab could simplify compliance and reduce disputes. However, transitioning items—especially mass-consumption goods and industrial inputs—must be done carefully to avoid inflationary pressure.”

He further noted that clear classification guidelines and a phased approach will be essential to avoid confusion and abrupt price hikes.

Brijesh Kothary, Partner at Khaitan & Co, echoed these concerns while stressing the need for comprehensive GST reforms as India nears the eighth anniversary of GST’s rollout on July 1, 2025.

“GST rate rationalisation is long overdue. The Council must act to minimise classification disputes, correct inverted duty structures, and expand the tax base. Inclusion of petroleum, natural gas, and electricity under GST would be a game-changer in reducing cascading taxes,” Kothary said.

He added that reforms on Input Tax Credit (ITC) and GST tribunals are also essential for creating a business-friendly tax environment.

Council Meeting Before Monsoon Session

The next GST Council meeting is expected to be held before the Monsoon Session of Parliament begins on July 21, 2025. The 55th Council meeting was last held on December 21, 2024, in Jaisalmer.

Sources indicate that the delay in convening the next meeting was due to the Union Budget preparations in February–March and national security priorities in April–May.

Now, with key policy decisions pending, the Council is expected to deliberate on several critical issues such as:

• GST rate rationalisation

• Compensation cess distribution

• Compliance simplification

• Tribunal framework finalisation

Back to the Vision: One Nation, One Tax

The idea of shifting to a three-slab GST regime is not new. Former Finance Minister Arun Jaitley, during the launch of GST in July 2017, had advocated for a gradual reduction in tax slabs. His long-term vision was to move towards “one nation, one tax”, making GST truly unified and simplified.

Over time, rate changes have been implemented selectively, but a structural overhaul like removing an entire slab could signal a decisive step toward achieving that vision.

As the GST Council prepares for its next meeting, the spotlight will be on whether it can build consensus for this bold reform — one that could reshape India's indirect tax architecture for the next decade.

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