Independence Day 2025: GST revamp on the cards as PM Modi promises a festive tax break

India may be headed toward a long-anticipated simplification of its Goods and Services Tax. In a high-profile Independence Day address, Prime Minister Narendra Modi pledged “next generation reforms in GST,” promising to “bring down the tax burden on consumers as well as micro, medium, and small enterprises.” The timing of the announcement is notable, coming just months before the crucial Bihar assembly elections in November.

The central government has already circulated a proposal to the Group of Ministers (GoM) under the GST Council, recommending a streamlined two-rate system — standard and merit — with a handful of special rates for select categories. The blueprint rests on three core themes: structural reform, rate rationalisation and ease of living.

As part of the structural overhaul, authorities intend to address inverted duty structures, reduce classification disputes and establish durable rate stability. Rate rationalisation efforts would include eliminating the current 12 percent slab, lowering taxes on essential and aspirational goods, and using fiscal room created by the conclusion of the compensation cess to ensure long-term sustainability. Ease-of-living measures could include pre-filled GST returns, smoother registration procedures and faster automated refunds for exporters and businesses affected by inverted duty structures.

According to government officials who spoke to CNBC-TV18, the next GST Council meeting is set for September 9, where the proposals may be taken up.

A report by Moneycontrol noted that the government has proposed two principal GST rates — 5 percent and 18 percent. In this framework, most goods currently taxed at 28 percent would move to the 18 percent bracket, while many items now taxed at 12 percent would fall to 5 percent. Items of daily use would likely be taxed at 5 percent, while tobacco products would attract a higher 40 percent rate.

The current GST system applies four principal slabs — 5, 12, 18 and 28 percent — on the sale of goods and services. Sources indicated that only seven to eight items may be subject to the 40 percent rate, with all other goods in the 28 percent category shifting to 18 percent.

Industries expected to benefit from lower tax rates include agriculture, textiles, fertilizers, auto parts, handicrafts, medical devices and insurance.

Petroleum products, however, will continue to remain outside the GST framework even under the revamped regime.