Major GST overhaul to reduce inflation? Know what SBI report predicts

The 56th meeting of the GST Council has approved a two-level (5% and 18%) tax structure, removing the old four-level tax system (5%, 12%, 18%, 28%). Apart from this, a special tax rate of 40% has been implemented on some luxury goods and services.

New Delhi: There is a significant change in GST rates, which will reduce the tax on everyday household goods and services. This can reduce the retail inflation rate by 0.65 to 0.75 percent in the next financial year 2025-26. According to the SBI Research report, the implementation of new GST rules will reduce inflation and benefit consumers.

GST Council Approves New Tax Structure

The 56th meeting of the GST Council has approved a two-level (5% and 18%) tax structure, removing the old four-level tax system (5%, 12%, 18%, 28%). Apart from this, a special tax rate of 40% has been implemented on some luxury goods and services. With this change, many essential commodities have become cheaper and tax on some items has been completely abolished.

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When Will New Tax Rates Be Applicable?

The new tax rates will come into effect from September 22, 2025, except for tobacco and related products. According to the report, the GST rate of 453 items has been changed, out of which tax has been reduced on 413 items and tax has increased on only 40 items. Tax on about 295 essential items has been reduced from 12% to 5% or 0%, which will benefit customers by up to 60% on food items.

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Effect On Inflation

The SBI report said that better streamlining of GST rates on services will further reduce retail inflation on other goods and services by 0.40 to 0.45 percent. This is likely to benefit consumers by about 50 percent. Overall, retail inflation may come down by 0.65 to 0.75 percent in FY 2026-27.

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Decline In Average GST Rate

After the rate rationalization of the GST Council in September 2019, the average GST rate had come down from 14.4% to 11.6%. After the new changes, it can further decrease to about 9.5%. With this new system, essential goods and services will become cheaper, which will reduce inflation and provide relief to the general public.

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