Big GST Overhaul Ahead: PMO Backs Major Tax Reform, 12% Slab Likely to Go

1. Introduction

In a major development for India's indirect tax system, the Prime Minister’s Office (PMO) has given the green light for a significant restructuring of the Goods and Services Tax (GST). This will be the first large-scale revamp of GST since its launch in 2017.

One of the most notable proposals is the removal of the 12% tax slab, with items possibly moving into the 5% or 18% categories. This move could ease the tax burden on consumers and simplify GST rates for businesses.

2. Current GST Structure at a Glance

India’s GST framework currently includes five main tax slabs:

0%, 5%, 12%, 18%, and 28%

There are also special rates of 0.25% and 3% for precious metals.

Distribution of goods under slabs:

5% slab: ~21% of goods

12% slab: 19% of items

18% slab: 44% of items

28% slab: Only 3% (mostly luxury and harmful goods)

3. Key Reform: Removal of 12% GST Slab

The 12% GST slab may be completely removed.

Items under 12% could be re-distributed between:

5% slab (benefiting consumers)

18% slab (for some high-value goods)

This rationalization aims to reduce complexity and improve compliance.

4. Compensation Cess & Revenue Protection

The 28% slab also includes a compensation cess for luxury/sin goods like:

Cigarettes

Automobiles

The cess was designed to compensate states for revenue loss during the GST transition.

It was extended to March 31, 2026, to repay ₹2.69 lakh crore debt from the COVID era.

The GST Council has now formed a group of ministers to review the use of excess funds in the cess pool.

5.Why Now? – The Right Time for GST Reform

Economic conditions have stabilized.

Free trade agreements with developed countries are upcoming.

This is seen as a timely opportunity to:

Encourage domestic industries

Simplify tax rates

Remove trade obstacles

6. PMO's Approval & Next Steps

The PMO has approved the reform in principle.

A new GST revamp proposal will be presented to the GST Council in August 2025.

The Council, India's top decision-making body for indirect taxes, will review and likely finalize these changes after the monsoon session of Parliament.

7.What Stakeholders Are Saying

Industry leaders have pushed for simplification of rates and fewer slabs.

Members of Parliament from different parties have voiced concerns over complex tax rules.

Senior officials and policy experts believe a streamlined GST will:

Boost economic growth

Improve compliance

Make tax systems business-friendly

8. When Will GST Rates Come Down?

Discussions are set to begin between the Finance Ministry and state governments.

The government is working to build political consensus on implementing these changes smoothly.

Actual implementation may follow post-GST Council approval in the upcoming sessions.