September 4,2025 – In a landmark decision, the Goods and Services Tax (GST) Council has approved a restructuring of the tax regime, replacing multiple slabs with a simplified two-rate structure of 5 per cent and 18 per cent, set to take effect from September 22.
The reform is expected to make daily-use household goods, educational supplies, cars, and two-wheelers cheaper, while also addressing long-standing concerns about complexity in the GST framework. This is the most sweeping change since the introduction of GST in 2017.
Announcing the decision, Finance Minister Nirmala Sitharaman, who chaired the Council meeting, said the aim was to create “a more transparent, consumer-friendly, and efficient tax system.” Essential commodities will fall under the 5 per cent category, while most other goods and services will be taxed at 18 per cent. The 28 per cent slab will be withdrawn, except for items such as tobacco and aerated beverages, which will continue to attract a cess.
Industry groups welcomed the announcement, stating that lower taxes on automobiles and consumer goods could help boost sales ahead of the festive season. Economists also noted that the streamlined structure could reduce litigation and improve compliance. According to experts, collapsing the 12 per cent and 28 per cent categories into a two-tier model will bring greater clarity and stability to businesses.
Concerns, however, were raised by some state representatives over possible revenue shortfalls in the initial phase. The Centre assured that a compensation mechanism would remain in place to safeguard state revenues. Officials further stated that the simplified structure would benefit small and medium enterprises, many of whom had faced difficulties navigating multiple rates.
The GST Network (GSTN) has been directed to implement the new system before September 22. Businesses will be issued revised guidelines to update pricing, billing, and accounting procedures. Analysts cautioned that while many goods will become cheaper, certain services currently under the 12 per cent bracket could shift to 18 per cent, resulting in modest cost increases in specific sectors.
The Council emphasized that the restructuring seeks to balance affordability for consumers with fiscal stability for the government. By moving to a simpler tax regime, the government has signaled its intent to align India’s GST system with global best practices.
This restructuring, observers say, marks a decisive step towards a unified and simplified indirect tax structure, expected to benefit both households and industry in the long run.
