What Changes Are Coming to GST? New Tax Rates Unveiled Ahead of Diwali!

Revamped GST Structure Announced

New Delhi: The Indian government has announced a significant overhaul of the Goods and Services Tax (GST), introducing only two tax rates of 5% and 18%, which are expected to replace the existing indirect tax system by Diwali this year, according to reliable sources.

Currently, essential food items are exempt from GST, while daily necessities incur a 5% tax, standard goods are taxed at 12%, electronics and services at 18%, and luxury items face a 28% tax. The new GST framework will simplify this to two main rates, along with a special 40% rate for luxury and sin goods.

Once the GST Council approves the new structure, it is anticipated that 99% of items currently taxed at 12% will transition to the 5% category. Additionally, nearly 90% of goods and services now taxed at 28% will shift to the 18% rate.

The special 40% rate will apply to only seven specific items, including tobacco, although the overall tax burden will remain at the current 88%.

This revamped GST is projected to significantly enhance consumption, potentially compensating for any revenue losses resulting from the tax rate adjustments.

Under the existing GST framework, which has been in effect since July 1, 2017, the majority of tax revenue—65%—is generated from the 18% tax rate. The 28% tax on luxury and sin goods contributes 11%, while the 12% slab accounts for a mere 5%. The lowest 5% tax on essential items contributes 7% to the total GST revenue.

Industries that are labor-intensive and export-focused, such as diamonds and precious stones, will continue to be taxed under the current rates.