GST meeting chaired by Sitharaman; tax slabs simplified, essentials cheaper
These reforms aim to simplify tax slabs, reduce compliance burdens, and boost economic growth. Tax cuts on essentials and some consumer goods are expected, while luxury and sin goods could see higher taxation. The meeting is part of PM Modi’s vision for next-generation GST reforms, anticipated to be announced before Diwali, to strengthen the economy and support inclusive growth.
The 56th GST Council meeting, led by Finance Minister Nirmala Sitharaman, began in New Delhi on September 3, 2025, with discussions set to continue over two days. This meeting is highly anticipated as it could mark one of the most significant overhauls in India’s GST regime since its inception in 2017. The Council is expected to deliberate on the Centre’s proposal to rationalize GST rates, which could replace the current four-slab system of 5%, 12%, 18%, and 28% with a simpler two-tier structure of 5% and 18%, along with a higher 40% rate applicable to luxury and sin goods.
A key highlight of the meeting is the potential shift of many commonly used items from the current 12% and 28% slabs to either 5% or 18%. For instance, essential food items such as ghee, nuts, milk powder, sugar, processed foods, and confectionery could see their tax rate reduced from 12% to 5%. Similarly, certain packaged goods, electronics, and automobiles might move from the 28% slab to an 18% rate, making these goods more affordable, especially ahead of the festive season. Conversely, items categorized as sin goods—such as tobacco products, pan masala, and high-end automobiles—could come under the proposed 40% GST slab, maintaining or even increasing their tax burden compared to the current system.
The Council is also faced with the critical challenge of managing revenue implications for states. Several states have warned that rationalizing GST slabs could significantly reduce their tax revenue. For example, Jharkhand’s Finance Minister Radha Krishna Kishore expressed concerns that his state could suffer a revenue loss of around ₹2,000 crore if these reforms are implemented without adequate compensation. Similarly, opposition-ruled states such as Karnataka, Kerala, Tamil Nadu, and West Bengal have collectively warned of potential annual revenue losses between ₹1.5 to 2 lakh crore. These states have called for safeguards such as full compensation for lost revenue and the possibility of an additional levy on luxury and sin goods that could be devolved entirely to them to make up for any deficits.
The GST Council, a constitutional body formed to recommend GST policy, was established to harmonize tax laws across India, promoting ease of doing business and transparency.
Alongside rate rationalization, the GST Council is exploring other reforms. These include improving compliance through automatic filing of returns and revisiting input tax credit (ITC) rules, particularly concerning group health and life insurance policies provided by companies to their employees. These changes aim to reduce tax disputes, boost compliance efficiency, and facilitate smoother tax administration.
Market sectors like automobiles and FMCG are closely watching the Council’s decisions. Purchasers in the automobile segment have delayed buying vehicles anticipating tax-driven price cuts, which could range from ₹55,000 to over ₹1 lakh on certain models. Consumer goods companies expect benefits as well, with reduced GST rates potentially boosting sales of daily essentials.
The meeting is also politically sensitive given its timing ahead of the Bihar Assembly elections and the festive season, both periods when tax relief could stimulate consumption and provide economic momentum. While the Centre has yet to officially release its estimate of revenue loss due to the proposed tax cuts, officials indicate that a replacement mechanism for the expired GST compensation cess might be discussed, ensuring states are financially cushioned.
This reform is viewed as a “next-generation” GST overhaul aimed at simplifying the tax structure, reducing compliance hurdles, and promoting inclusive growth across the country. The outcome of this Council meeting is expected to shape India’s taxation landscape significantly, impacting millions of consumers, businesses, and state governments alike.