"GST overhaul likely as Centre signals approval: Report"

Major GST Overhaul Likely as PMO Gives In-Principle Nod

India may soon witness the most significant reforms in its Goods and Services Tax (GST) system since its rollout in 2017, as the Prime Minister’s Office (PMO) has approved, in principle, a revamp of the current GST structure, The Economic Times reported.

The reforms are expected to be discussed in the upcoming GST Council meeting in August. The finance ministry has already begun internal deliberations and will soon initiate discussions with states to build consensus.

Proposed Changes

The overhaul focuses on simplifying the GST framework, particularly the tax slab structure and compliance procedures. Currently, GST features five main rates—nil, 5%, 12%, 18%, and 28%—plus two special rates (0.25% and 3%) for items such as precious metals.

Officials are considering removing the 12% slab entirely. Goods currently taxed at 12% could shift to either 5% or 18%, depending on their classification. This move aims to make the system easier to understand and administer.

Background and Context

A group of ministers had earlier been assigned to explore rate rationalisation, but progress has been limited. With macroeconomic conditions reportedly stable, the Centre now appears ready to advance reforms with political and administrative backing.

The revamp is also seen as a preparatory step for India’s upcoming free trade agreements (FTAs) with developed nations. A more streamlined GST system is expected to benefit Indian businesses and make compliance less burdensome, especially for small and medium enterprises (SMEs).

Compensation Cess

The compensation cess on products like soft drinks, tobacco, and luxury cars—used to offset states' revenue losses from the GST transition—has been extended to March 2026. Originally set to end in 2022, the extension was necessary due to a shortfall during the Covid period, when the Centre borrowed ₹2.69 lakh crore on behalf of the states.

A separate committee is now working on plans to utilise the cess fund surplus and manage future payouts.

What’s Next

The final GST reform proposal is expected to be presented to the GST Council—comprising state finance ministers and chaired by the Union Finance Minister—after the Parliament's monsoon session. If consensus is reached, the changes could usher in a new phase of GST implementation in India.