In line with Prime Minister Narendra Modi’s announcement on Independence Day 2025 that the country will soon see the introduction of next generation GST reforms by Diwali, the Finance Ministry has officially proposed a significant overhaul of the Goods and Services Tax structure. Moving away from the current four-tier system of 5%, 12%, 18% and 28%, the government has proposed a simplified, two-slab GST structure, supported by a special rate category for select items.

According to the Ministry, the reforms are designed on three core pillars: structural reforms, rate rationalisation, and ease of living. Under the new proposal, GST will be divided into a standard rate and a merit rate, with the latter aimed at items of essential and aspirational nature — those frequently used by the middle class and lower-income households.

The Ministry believes that reducing tax rates for these goods will enhance affordability, boost consumption and make daily-use and aspirational items more accessible for a wider population. The statement further notes that the proposed changes will help create a more inclusive, constructive and consensus-based tax environment, and improve the overall efficiency of the GST framework that was first rolled out in July 2017.

The official proposal has been sent to the Group of Ministers (GoM), which was earlier appointed by the GST Council to assess rate rationalisation. The Council, chaired by Finance Minister Nirmala Sitharaman and comprising finance ministers from various states, is expected to take up the proposal during its September meeting.

During his Independence Day address, PM Modi highlighted that GST has now completed eight years and called it the right time to undertake comprehensive reforms that would substantially lower the tax burden on small businesses and industries. He indicated that the upcoming changes are intended to simplify the tax regime, support growth in the MSME sector and stimulate economic activity — especially as the country moves towards the festive season.

With the proposal now formally placed before the GST Council, industry bodies and state stakeholders are expected to begin consultations over the next few weeks. If approved, the new two-slab structure and tax relief measures could be put into effect in time for Diwali, paving the way for a more streamlined and citizen-friendly indirect tax system in India.

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