Prime Minister Narendra Modi has announced that India will soon witness the next big phase of GST (Goods and Services Tax) reforms by Diwali 2025. Speaking during his Independence Day address, the PM assured that these reforms will reduce the tax burden on the common man and boost the growth of MSMEs (Micro, Small and Medium Enterprises).

“This Diwali, I am going to make it a double Diwali for you… We reduced the burden of tax over the last eight years, but now it’s time to review and make it even simpler,” Modi said. He highlighted that a high-powered committee has already been formed, and discussions with states are underway to finalize the changes.

Multiple GST Council Meetings Planned

According to government sources, multiple meetings of the GST Council will be held before the festive season to finalize the reforms. The last GST Council meeting took place in December 2024, and the upcoming sessions will focus on rate reductions and structural simplifications.

The Council, comprising members from both the Centre and states, will have to carefully assess the revenue implications before approving any rate cuts, especially since some proposals could result in losses of ₹70,000-₹80,000 crore annually.

Key Proposals Under Consideration

1. Removal of the 12% GST Slab
   • The government plans to scrap the 12% slab entirely.
   • Items currently taxed at 12% will be moved either to the 5% slab (essential goods) or the 18% slab (non-essential items).
   • This will simplify the GST structure but may impact revenue collection.
2. Rate Reductions on Daily-Use and Public Welfare Items
   • Bicycles priced below ₹10,000: From 12% to 5%
   • Exercise notebooks: From 12% to 5%
   • Packaged drinking water above 20 litres: From 18% to 5%
   • Food delivery services, life insurance premiums, and health insurance may also see reduced rates.
3. Hike in Rates for Luxury Items
   • Wristwatches above ₹25,000, shoes above ₹15,000, and high-end readymade garments may be moved to the 28% slab from 18%.
   • This move aims to create a pricing-based tax differentiation.
4. Discussion on Petroleum Products & ATF Inclusion
   • Aviation Turbine Fuel (ATF) remains outside the GST regime.
   • Airlines have long demanded its inclusion to allow input tax credit, as ATF accounts for over 40% of operating costs.
5. Compensation Cess & Sin Goods
   • The Council may revise compensation cess rates.
   • Special tax rates for tobacco and aerated drinks are also under consideration.

Impact on Common Man & MSMEs

For the common man:

• Cheaper bicycles, drinking water, and insurance services will directly reduce household expenses.
• Simplification of GST rates will make goods pricing more transparent.

For MSMEs:

• Lower tax rates on raw materials and services will reduce operational costs.
• Simpler GST slabs will ease compliance and paperwork, improving business efficiency.

Challenges & Revenue Concerns

While these reforms promise relief, revenue loss is the primary concern for both Centre and states. Shifting items from the 12% slab to lower rates could reduce annual GST collections significantly. The government is banking on higher consumption and economic growth to offset these losses in the long run.

Conclusion

The next-generation GST reforms, expected to roll out by Diwali 2025, mark a decisive step towards making India’s tax system simpler and more citizen-friendly. By reducing tax rates on essential goods and services while ensuring luxury goods are taxed higher, the government aims to strike a balance between public welfare and fiscal responsibility.

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