New Delhi, india- August 20, 2025

A high-level Group of Ministers (GoM) in India is meeting today to deliberate on a sweeping set of Goods and Services Tax (GST) reforms, a move that could reshape the country’s tax landscape and provide a significant “Diwali gift” to the common man, as promised by Prime Minister Narendra Modi. The proposed changes aim to simplify the complex tax structure, lower the burden on consumers and businesses, and stimulate economic activity.

The central government has put forth a comprehensive proposal to the GoM, centered on three core pillars: structural reforms, rate rationalization, and ease of living. This blueprint for “Next-Generation” GST seeks to address long-standing issues and mature India’s indirect taxation system into a more efficient and business-friendly framework.

Headlines from the Proposed Reforms

 * Two-Slab System: The most significant change under consideration is the move from the current four-tier structure (5%, 12%, 18%, and 28%) to a simplified two-slab system. The new structure would primarily consist of a 5% rate for “merit” goods and an 18% rate for “standard” goods.

 * Lowering Tax on Everyday Items: As part of the rate rationalization, it is proposed that almost all items currently in the 12% slab would move to the lower 5% rate. This change is expected to reduce the cost of many household goods, consumer durables, and packaged food items, providing tangible relief to the middle class and a boost to consumption.

 * Correction of Inverted Duty Structures: The reforms also aim to correct the “inverted duty” structure in specific sectors, such as textiles, where input taxes are higher than output taxes. This would resolve a major pain point for manufacturers, freeing up working capital and encouraging domestic production.

 * Simplified Compliance: The new measures are designed to enhance the “ease of doing business.” The government is proposing technology-driven changes, including pre-filled returns and faster, automated refunds for exporters and businesses with an inverted duty structure.

 * Special Rate for Demerit Goods: While the majority of goods would fall into the two new slabs, a special rate of 40% would be applied to a select list of demerit and sin goods, such as tobacco and pan masala, ensuring that the government’s revenue from these items is sustained.

The GoM’s recommendations will be presented to the GST Council, which includes Finance Minister Nirmala Sitharaman and her counterparts from all Indian states. The goal is to build a broad consensus and implement the reforms by Diwali, a major festive season in India.

The government’s proposal comes after months of deliberation and a public acknowledgment from the prime minister that the time has come for a more simplified and beneficial tax regime. While some state finance ministers have raised concerns about potential revenue implications, the central government is confident that the new structure will be revenue-neutral over time by stimulating economic growth and expanding the tax base.

The success of the proposed reforms hinges on the GoM’s ability to reach a consensus and address the concerns of individual states. If approved, these changes could mark a new chapter for the Indian economy, driving consumption, simplifying business operations, and cementing GST as a tool for economic growth and public welfare.