In a landmark decision, the Goods and Services Tax (GST) Council has approved a streamlined tax structure featuring just two slabs: 5% and 18%. This new regime will be implemented nationwide starting September 22, 2025, marking one of the most significant reforms since GST’s inception in 2017.
Simplification of Tax Rates
Currently, India’s GST system has multiple slabs—5%, 12%, 18%, and 28%—creating confusion and compliance challenges for businesses. By reducing the slabs to just two, the Council aims to simplify the tax structure, making it easier for companies to file returns and reducing the risk of disputes over classification.
Finance Minister Nirmala Sitharaman, while addressing the media after the meeting, emphasized that the reform reflects the government’s commitment to “ease of doing business” and is expected to boost investor confidence.
What Falls Under the New Slabs?
- 5% Slab: Essential goods and services such as food items, daily-use household products, and select public utilities are expected to remain under the lower tax bracket to safeguard affordability.
- 18% Slab: Most consumer durables, electronics, and premium services will come under this slab, replacing the earlier 28% rate on luxury goods.
While detailed classifications will be released soon, the Council confirmed that sin goods like tobacco and alcohol will continue to attract cess charges over and above the 18% slab.
Impact on Businesses
For businesses, the new structure promises simpler compliance and reduced litigation. With fewer slabs, classification disputes are likely to decline, and filing GST returns may become faster and more transparent.
Industry experts believe the reform could particularly benefit small and medium enterprises (SMEs) that often struggle with navigating complex tax brackets. Additionally, reduced rates on some categories could encourage consumer spending, helping revive demand in sectors such as automobiles and electronics.
Consumer Relief
Consumers are also expected to benefit as several goods currently taxed at higher rates may now fall under the 18% slab, leading to price corrections. Essential goods retaining the 5% rate means the impact on household budgets will remain minimal.
Economists point out that this rationalization could lead to a short-term dip in government revenue, but the boost in compliance and consumption is expected to offset losses in the medium term.
Road Ahead
The GST Council will closely monitor the impact of the two-slab regime in the first six months post-rollout. Any anomalies or sectoral challenges will be addressed through periodic reviews.
This bold reform has been welcomed by both industry and consumer groups as a progressive step toward a more transparent and efficient taxation system.
By reducing the GST slabs to just 5% and 18%, India has taken a decisive step toward simplification and growth. The rollout on September 22 is expected to usher in a new era of easier compliance, fairer taxation, and a stronger push for consumer-driven demand.