GST Shake-Up: What India’s New Two-Slab System and Special Rates Could Mean for You

A simplified two-tier GST system has been proposed recently by the central government with a standard and merit slab, alongside special rates for select goods, the Finance Ministry said on Friday.

What Will Happen To The Current Slabs?

The rate overhaul which has been proposed will replace current slabs of 5, 12, 18, 28% and the GST Council meeting is likely to be held next month.

The Central Government's proposal on GST rate rationalisation and reforms to the Group of Ministers (GoM) constituted by the GST Council to examine this issue. Key areas identified for the next-generation of reforms include the rationalisation of tax rates to benefit all sections of society, especially the common man, women, students, middle class, and farmers.

Additionally, these reforms will seek to reduce classification-related disputes, correcting inverted duty structures in specific sectors, ensuring greater rate stability, and further enhancing ease of doing business. These measures would further strengthen important economic sectors, stimulate economic activity and enable sectoral expansion.

What Are The Key Changes Proposed?

Reduction of taxes on common man items as well as aspirational goods: This would enhance affordability, boost consumption, and make essential and aspirational goods more accessible to a larger population.

Reduction of slabs: Essentially move towards simple tax with 2 slabs – standard and merit. Special rates only for select few items.

Compensation Cess: Due to the end of compensation cess, more space has been created in the fiscal space, providing greater flexibility to rationalise and align tax rates within the GST  framework for long-term sustainability.

Inverted duty structure correction: The correction of inverted duty structures is being made to align input as well as output tax rates so that there is a reduction in the accumulation of input tax credit. This would also add to domestic value addition.

Resolving classification issues: Resolve classification issues to streamline rate structures, minimise disputes, simplify compliance processes, and ensure greater equity and consistency across sectors.

Stability and Predictability: Providing long-term clarity on rates and policy direction would help build industry confidence and support better business planning.

Registration: This process needs to be seamless, technology-driven, and time-bound, especially for small businesses and startups.

Return: Implement pre-filled returns, thus reducing manual intervention and eliminating mismatches.

Refund: Automated as well as faster refunds for exporters and those with inverted duty structure.

In the financial year 2024-25, gross GST collections hot a record Rs 22.08 lakh crore, marking a year-on-year growth of 9.4%. This rise highlights the growing formalisation of the economy and improved tax compliance.

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