Most 12% Items To Move To 5% GST, 28% Goods Shift To 18% Under New Regime

A major step toward simplifying India's indirect tax system was taken on Thursday as a key panel of state finance ministers endorsed the Centre's proposal to reduce the number of GST slabs from four to two.

The six-member Group of Ministers (GoM), chaired by Bihar Deputy Chief Minister Samrat Choudhary, approved the plan to replace the current structure of 5, 12, 18, and 28 per cent rates with just two main slabs-5 per cent and 18 per cent.

Under the revised framework, "merit" goods and services will continue to attract a 5 per cent GST, while most other items will be taxed at the standard 18 per cent rate. A higher levy of 40 per cent will still apply to a narrow range of so-called sin goods such as alcohol, tobacco, drugs, gambling, soft drinks, coffee, fast food, sugar, and pornography. The sin tax, the government explained, is meant to discourage harmful consumption and offset the social cost of such products.

Finance Minister Nirmala Sitharaman, speaking at the GoM's two-day deliberation, highlighted that streamlining GST would make the system more transparent, improve compliance, and directly benefit the common man, farmers, the middle class, and small businesses.

As part of the rationalisation, nearly all products currently taxed at 12 per cent will move down to the 5 per cent category. Likewise, many items now in the 28 per cent bracket will shift to the 18 per cent slab. According to the Centre, this reclassification is expected to ease compliance and reduce complexity for businesses.

The GoM also evaluated the Centre's proposal to exempt GST on individual health and life insurance premiums. While most states supported the move, they stressed the need for regulatory safeguards to ensure insurers actually transfer the benefit to policyholders. The exemption could cost the exchequer around ₹9,700 crore annually.

The final call on these recommendations will be taken by the GST Council in its upcoming meeting scheduled for September.