India’s indirect taxation system is once again at a turning point as the GST Council is scheduled to meet on September 3 and 4, 2025, to deliberate on key reforms, including the Centre’s ambitious proposal to move to a two-rate GST structure. This meeting will be one of the most crucial in recent years, as it may set the stage for a complete restructuring of the Goods and Services Tax framework introduced in 2017.

Centre’s two-rate GST proposal

The Central Government has been advocating for a simplified GST regime to replace the current multi-rate structure, which includes rates like 0%, 5%, 12%, 18%, and 28%. Under the proposed reform, the GST system would move to just two principal rates, reducing complexity for taxpayers and businesses.

The rationale behind this proposal is to ensure ease of compliance, fewer disputes, and simpler administration, while also making the GST system more predictable and business-friendly. The government believes that the current multi-slab system has led to unnecessary confusion, classification disputes, and frequent litigation.

Role of Groups of Ministers

Over the past months, the Council had constituted several Groups of Ministers (GoMs) to study different aspects of GST reforms, including rate rationalisation, compliance simplification, and IT system upgrades. The September meeting will focus on their recommendations and determine how these can be integrated into the government’s two-rate framework.

These GoMs have reportedly suggested that a two-rate structure could be achieved by merging some of the existing slabs, while ensuring that essential goods continue to be taxed at a lower rate and luxury/sin goods attract higher taxation.

Impact on businesses and taxpayers

If adopted, the two-rate GST system could be one of the most significant tax reforms since GST’s introduction. For businesses, it would mean simpler billing, easier classification of goods and services, and reduced compliance burden. For taxpayers, it could bring clarity and predictability, though the actual impact would depend on which goods and services fall under each of the two rates.

Economists and tax experts believe the move could also help boost consumption, as reduced complexity may encourage better compliance and lower disputes. However, critics argue that merging multiple slabs into two could result in rate shocks for certain goods, potentially raising prices in some categories.

Political and economic context

The decision comes at a time when India is pushing for higher economic growth, and the government wants to make the tax system more investment-friendly. Simplifying GST into a two-rate structure could also improve India’s rankings in ease of doing business and bring it closer to international best practices.

The September meeting will therefore carry immense significance, as any reform in GST affects not just businesses, but also state governments, which rely heavily on GST revenues. Since GST is a cooperative federal framework, any major reform requires consensus-building among the Centre and states.

Road ahead

If the GST Council gives in-principle approval, the detailed structure and transition plan could take several months to implement. Businesses may need time to adjust IT systems, pricing structures, and compliance processes. Meanwhile, the Centre is expected to assure states of compensation mechanisms, since rationalisation could impact short-term revenues.

In summary, the upcoming September 3-4 GST Council meeting will be a landmark moment in India’s tax reform journey. The decision on whether to move towards a two-rate GST system will shape the future of indirect taxation, impacting both the economy and everyday consumers.

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