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The government is reviewing the 8-year-old GST structure, focusing on reducing tax rates on consumer goods currently under the 12% slab to provide relief to the general public
The government is considering eliminating the 12% tax slab entirely. (Representative/Shutterstock)
Middle and low-income consumers may soon get some relief, with the GST Council expected to review and possibly reduce tax rates on several commonly used household products in its upcoming meeting.
The government is reviewing the eight-year-old Goods and Services Tax (GST) structure, with an emphasis on lowering the tax rate on consumer goods currently in the 12% tax slab. This slab includes essential items such as butter, ghee, processed foods, mobile phones, fruit juices, pickles, jam, chutney, coconut water, umbrellas, bicycles, toothpaste, shoes, and clothes, which are commonly used by the general public.
Additionally, the government is considering a proposal to reduce taxes on high-end products like air conditioners.
The Compensation Cess, which compensates states for revenue loss following GST implementation, is set to end in March 2026. To address this, the central government plans to impose a new cess on ‘sin goods’ such as tobacco to offset the potential revenue loss for states.
In addition, the government favours abolishing the current 18% GST on pure term insurance plans, according to a report by the Times of India. Insurance companies have requested reducing it to 12%, believing this move will directly benefit middle-class consumers. There is also a possibility of a tax reduction on health insurance, though a final decision is yet to be made.
Sources indicate that the government is considering eliminating the 12% tax slab entirely. However, tax rates on products used in business activities might be increased to help limit the revenue deficit.
The government believes that reducing tax rates will boost product demand, partially compensating for any revenue losses. The review aims to provide relief to consumers and enhance demand, thereby offsetting potential revenue loss due to lower tax rates. A senior official mentioned that revenue should not be assessed solely based on figures, as increased consumption resulting from tax reductions could benefit the government in the long term.
The overarching goal of the GST reforms is to establish a permanent tax structure that requires fewer changes, thus providing clarity and stability for traders and consumers. Achieving political consensus on the reform proposals remains a significant challenge, as states have previously opposed tax cuts due to fears of revenue loss.
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