New Rates, Relief For Middle Class On Daily Use Items’ On GST Council Agenda

1. The council, which includes state and UT finance ministers, will discuss recommendations on rate rationalisation – which Prime Minister Narendra Modi called ‘next-generation’ reforms – as well as compensation cess and health and life insurance.
2. A two-rate structure has been recommended – five and 18 per cent. Goods will be classified as ‘merit’ or ‘standard’; those in the latter will attract the lower rate. There will also be a special ‘sin tax’ of 40 per cent on certain items, including tobacco products and luxury automobiles. There will be only five to seven goods in this list.
3. The current system has four slabs – five, 12, 18, and 28 per cent. The government plans to cut tax on 90 per cent of all goods now in the 28 per cent category; these will drop into the 18 per cent bracket. Similarly, a large chunk of goods – specifically those to be listed as ‘daily use’ items – will drop from 12 per cent to the five per cent slab.
4. This rationalisation is expected to generate a boost in consumption, specially among the middle class, that should offset the Rs 50,000 crore in expected revenue loss.
5. The rationalisation is also expected to offset, at least partly, the impact of Donald Trump’s 50 per cent tariff. The levies are likely to affect around $48 billion in Indian-made goods being sent to the US, potentially affecting Indian businesses and jobs.
6. The GST overhaul – and the resultant spending, the government hopes – could also further boost economic growth, particularly after a big thumbs-up from global ratings agency Standard and Poor. Last week the government said the GDP has grown 7.8 per cent in the first quarter of this financial year, i.e., FY26, against a 6.5 per cent estimate.
7. A recent SBI Research report suggested GST reforms, combined with recent income tax cuts, could lift consumption by Rs 5.31 lakh crore, equal to around 1.6 per cent of GDP.
8. The government has said the revision is based on three pillars – structural reforms, rate rationalisation, and ease of living – in line with its push to make India ‘aatmanirbhar’, or ‘self-reliant’ while continuing its journey to become the world’s third-largest economy.
9. Meanwhile, the proposed GST changes have been received with scepticism by opposition-ruled states, which have flagged the potential revenue loss and demanded compensation for losses they expect to incur. Eight state finance ministers, including those from Tamil Nadu, Punjab, and Bengal, will make presentations to the council.
10. Their proposal for balancing rate rationalisation and revenue neutrality suggests an additional duty on sin and luxury goods, in addition to the proposed 40 per cent. The proceeds from this can be distributed among states, they have said.

With input from agencies