On August 15, 2025, during his Independence Day address, Prime Minister Narendra Modi announced a historic reform of India’s Goods and Services Tax (GST) system — a move set to benefit millions of consumers and businesses across the country. This “Diwali gift”, scheduled for October 2025, will simplify tax slabs and reduce GST rates on everyday essentials.
What’s Changing?
• From Multiple Slabs to Two: The existing 5%, 12%, 18%, and 28% GST slabs will be merged into just two standard rates. Special rates will apply only to a limited set of goods and services.
• Massive Rate Cut on Essentials: 99% of items currently taxed at 12% will be moved to the 5% bracket, significantly lowering the price of packaged foods, apparel, hotel stays, and more.
Why It Matters
Consumer Savings: With most 12% items moving to 5%, households will save more on everyday purchases — from grocery staples to travel expenses.
Simpler Compliance: Businesses, especially MSMEs, will benefit from clearer tax categories and reduced classification disputes.
Economic Boost: While the government may lose ₹500 billion (≈0.15% of GDP) in revenue, economists expect a stimulus of 0.6%–0.7% of GDP through increased consumption.
Festive Timing: The reform will take effect just before Diwali, traditionally a period of high consumer spending, magnifying its positive impact.
What Happens Next?
A Group of Ministers (GoM) is reviewing the Finance Ministry’s proposal. Once approved by the GST Council, the two-slab system will roll out in October 2025 — just in time for the festive season.
Frequently Asked Questions (FAQs)
- Q: Will GST be reduced to just two slabs?
A: Yes. Only two standard slabs will remain, with a few special rates for select items.
- Q: Which products move from 12% to 5%?
A: Likely packaged foods, clothing, hospitality services, and other consumer goods. Final list to be notified by the GoM.
- Q: Does this apply to fuel or alcohol?
A: No. These items are outside the GST framework and remain under state taxes.
- Q: How much revenue will be lost?
A: Around ₹500 billion, but the economic boost from higher spending could offset this.
- Q: Is it approved yet?
A: Not fully. It’s pending GST Council approval after GoM recommendations.
- Q: How will it help businesses?
A: Easier invoicing, fewer disputes, and reduced compliance burden, especially for small traders.
In Summary
Prime Minister Modi’s announcement marks a transformative moment in India’s tax history — simplifying GST slabs, slashing rates for most 12% items, and energising the economy ahead of the festive season.
This two-slab GST is not just a tax reform — it’s a strategic economic push aimed at boosting consumption, helping small businesses, and putting more money back into people’s pockets.
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