New Delhi: The GST Council, on Wednesday, did away with the 12% and 28% slabs of indirect taxation, promising to ease household budgets and lift consumer sentiment. Under the new scheme that will come into effect from September 22 this year, goods and services will only fall under the 5% or 18% rates.
Most items that are now charged 12% will move to the 5% bracket, while those in the 28% slab will migrate to 18%. This will make a wide range of products and services cheaper, boosting consumption before the festival season and at a time when the economy is looking for fresh momentum.
The changes in GST rates of all goods except pan masala, gutkha, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and bidi, will be implemented with effect from September 22, 2025.
“Pan Masala, gutkha, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and bidi will continue at the existing rates of GST and compensation cess where applicable, till loan and interest payment obligations under the compensation cess account are completely discharged,” the press release stated.
This decision comes weeks after Prime Minister Narendra Modi, in his Independence Day speech, promised a “Diwali gift” in the form of a GST overhaul. A Group of Ministers had subsequently vetted the Centre’s plan, which the Council endorsed at its meeting on Wednesday.
While eight opposition-ruled states including Himachal Pradesh, Jharkhand, Karnataka, Kerala, Punjab, Tamil Nadu, Telangana and West Bengal warned of potential losses of Rs 1.5–2 lakh crore, SBI Research projected that they could still receive at least Rs 10 lakh crore in SGST and Rs 4.1 lakh crore via devolution in FY26.
It is estimated that states will remain net gainers despite short-term pressures. GST revenues, including devolution, are pegged at over Rs 14.1 lakh crore this fiscal.
According to the Economic Times, the effective weighted average GST rate, which dropped from 14.4% at inception in 2017 to 11.6% in 2019, may now fall further to 9.5%. Evidence from earlier rationalisations suggests revenues dip initially but rebound strongly, with past rounds adding nearly Rs 1 trillion in collections.
GST was rolled out on July 1, 2017, with four slabs of 5%, 12%, 18% and 28%. A compensation cess on luxury and demerit goods helped create a revenue pool to support states, though this mechanism ended in June 2022.
With the latest rationalisation, policymakers hope the simplified two-slab structure will deliver on the original promise of GST which was efficiency, affordability and a bigger consumption push for the Indian economy.
