GST council to consider scrapping 12% and 28% tax slabs, merging into 5% and 18%

A ministerial panel approves merging the 12% and 28% GST slabs into 5% and 18% rates. The final decision rests with the GST Council, aiming for implementation by Diwali 2025. A 40% rate may apply to luxury and sin goods.

New Delhi: A very big and historic change is going to happen in India's GST (Goods and Services Tax) system. A Group of Ministers (GoM) has accepted a proposal of the central government to completely abolish the existing tax slabs of 12% and 28%.

The goods and services falling in these slabs are now proposed to be included in the existing slabs of 5% and 18%. This information was given by Bihar Deputy Chief Minister Samrat Chaudhary. However, a meeting of the GST Council is yet to be held to put a final seal on this proposal, which is expected to be held in September 2025.

In this meeting, not only the abolition of slabs but also important issues like changes in health insurance rates and adjustments in taxes on essential items will be discussed. After the approval of the GST Council, the central government will have to reach a consensus on it with all the states, because GST is a tax that is implemented by both the Center and the state together.

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Once the consensus is reached, a new bill will have to be introduced and passed in Parliament to give these changes a legal form. Tax software and other administrative preparations will also have to be made. Prime Minister Narendra Modi announced in his speech from the Red Fort on 15 August 2025 that these reforms will be implemented by Diwali 2025.

This means that by October-November 2025, the country may have only two main tax slabs of 5% and 18%. However, a separate 'special rate' of 40% will also be imposed on luxury and harmful items like tobacco and online gaming so that the government's revenue is not affected.

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The government hopes that the reduction in tax will increase people's purchases (consumption), which will compensate for the revenue despite the reduction in tax. Currently, the biggest chunk of GST revenue (65%) comes from the 18% slab, while the 28% slab generates just 11% and the 12% slab generates just 5%. Hence, the government has a solid economic rationale for removing these slabs.