Diwali GST bonanza on way: Govt to scrap 12%, 28% rates

In a major overhaul of the multi-tiered goods and services tax (GST) structure, the central government has proposed scrapping the 12% and 28% slabs, among other reforms to India's indirect tax regime that are expected to stimulate economic growth.

- Gireesh Chandra Prasad

In the short term, however, the restructuring could result in lower revenues to the exchequer, a central government official said on Friday.

As per the proposal, most of the products and services that attract rates of 12% and 28% will be shifted to the 5% and 18% slabs, respectively. A few remaining items in the 28% bracket-currently the highest-will be moved to a new 40% slab that will cover only a few 'sin goods' such as tobacco products, the official said.

"In the context of the US tariff-related uncertainty, some boost in demand was needed.

The GST reform comes in handy in this regard," said D.K. Srivastava, chief policy advisor, EY India.

The consumption stimulus follows a massive income tax relief offered in the Union Budget for 2025-26 and a 100basis-point reduction in the repo rate by the Reserve Bank of India since February to boost economic growth.

The Centre's proposal has been sent to a GST Council ministerial group led by Bihar deputy chief minister Samrat Chaudhary. The panel will place its report before the Council at its next meeting in September or October.

Sectors such as auto components, handicraft, healthcare and medical devices, textiles, fertilizers, and insurance services will benefit from the GST restructuring, the official said, adding that tax anomalies will also be corrected and refunds expedited.