New Delhi: India could be heading towards its biggest tax shake-up since the Goods and Services Tax (GST) was introduced in 2017. Finance Minister Nirmala Sitharaman, who chairs the 58th GST Council meeting today, will be looking to turn Prime Minister Narendra Modi’s call for GST reforms into action. The meeting is currently underway.
At the heart of the agenda is a move to simplify GST rates. Right now, India has four slabs—5%, 12%, 18% and 28%. The new plan is to collapse these into two:
5% for essentials such as food and personal care items
18% for non-essentials like consumer electronics, white goods and most services
On top of that, a 40% rate is being considered for “luxury and sin goods” such as tobacco, high-end cars and premium motorcycles.
What this means for consumers
If approved, the changes could make a big difference to daily expenses. Toothpaste, soaps, shampoos, butter, cheese and packaged foods may all move into the 5% bracket, compared to the higher 12% or 18% rates today. That’s direct relief for households and a likely demand booster for FMCG companies such as Hindustan Unilever, Godrej and Nestlé.
Electronics and household appliances are also expected to become cheaper. Items like TVs, fridges, ACs and washing machines—which are currently taxed at 28%—may come down to 18%. Cement too could shift to the lower slab, offering some relief for housing and infrastructure costs.
The tricky part: Automobiles
The auto sector will be watching closely. Small petrol cars and hybrids may benefit from GST being cut from 28% to 18%. But for electric vehicles, the Council may raise taxes on cars priced between ₹20–40 lakh to 18% from 5% now, while luxury EVs could face even higher taxes. That’s a setback for Tata Motors, Mahindra and global players like Tesla and BYD.
Two-wheelers have long been demanding relief from the steep 28% slab, and the Council is likely to bring them down to 18%. However, bikes above 350cc—think Royal Enfield’s popular models and Bajaj’s premium range—could end up being taxed at 40%, as part of the new “luxury” definition.
Bigger picture: Growth vs revenue
According to SBI Research, these reforms could add about 0.6 percentage points to India’s GDP growth, offsetting some of the drag from US tariffs on Indian exports. They also expect retail inflation to ease by 20–25 basis points as prices of essentials fall. Lower prices would encourage higher consumption, which in turn could lift GST collections over time.
But there’s a cost. IDFC First Bank estimates the government could lose as much as ₹1.7 lakh crore in revenue, while SBI expects the hit to be between ₹60,000 crore and ₹1.1 lakh crore. The special 40% slab on luxury goods, along with surplus cess funds, will likely be used to balance the books and compensate states.
Why it matters
Since 2017, GST has often been criticised as complex and burdensome. By reducing the number of slabs and simplifying rates, the government hopes to make compliance easier, cut down disputes and bring more clarity for businesses. For consumers, it could mean lower prices on essentials and appliances. For policymakers, it’s a chance to show that reforms can drive growth even in a tough global environment.
The decisions taken in this meeting won’t just affect what we pay for toothpaste or cars—they could set the direction of India’s indirect tax system for the next decade. If the Council can strike the right balance between relief and revenue, GST 2.0 may truly feel like the “one nation, one tax” model it was always meant to be.
