GST Council Plans to Scrap 12% Slab, Shift Items to 5% or 18%
The Goods and Services Tax (GST) Council is actively considering eliminating the 12% tax slab from India’s four-tier GST rate structure. The current system includes 5%, 12%, 18%, and 28% slabs. If implemented, the proposal would move all goods and services currently taxed at 12% into either the 5% or 18% brackets.
This rationalisation is aimed at streamlining tax classifications, reducing interpretational disputes, and enhancing overall compliance. The Council believes that removing one tier will help make the system more intuitive for taxpayers while simplifying administration for authorities.
Key Goods and Services Affected
The 12% slab presently includes a range of widely consumed items such as packaged drinking water, condensed milk, contact lenses, household utensils, and various categories of furniture. It also covers services such as mid-range hotel stays, certain construction services, and rail transport of goods.
Under the proposed shift, essential items may move to the 5% bracket to keep prices stable, while non-essential or higher-end products and services could be moved to 18%. Each item will be reclassified based on usage, necessity, and overall impact on the consumer market.
Revenue Neutrality and Efficiency Goals
While simplification is the core objective, the GST Council remains focused on maintaining revenue neutrality. Reclassifying items strategically is expected to minimize fiscal disruption for both central and state governments. The move is also intended to prevent tax evasion and improve input tax credit reconciliation, which has been a recurring challenge.
Officials believe that a leaner GST structure could boost ease of doing business and reduce litigation related to rate classification, which has become a major compliance bottleneck in recent years.
Implementation Timeline and Expected Deliberations
The GST Council, chaired by the Union Finance Minister and comprising state finance ministers, is expected to take up the matter in its upcoming session. If consensus is reached, the new rate changes will be notified formally and rolled out in the following months.
Businesses are advised to prepare for possible reclassification impacts on their pricing strategies and supply chains. Consumers too can expect price changes in various segments once the rate adjustments are implemented.
This restructuring, if approved, could be the most substantial GST reform since its inception in 2017, signaling a move toward a simplified, more predictable tax environment.
