A key meeting of the Group of Ministers (GoM) on GST rate rationalisation on Thursday ended with state finance ministers accepting the Centre’s plan to reduce the number of tax slabs.
The proposal, placed before the six-member GoM led by Bihar Deputy Chief Minister Samrat Choudhary, seeks to replace the current four rates of 5, 12, 18 and 28 per cent with just two main slabs.
Under the new structure, “merit” goods and services will attract 5 per cent GST, while most other items will fall under an 18 per cent standard rate.
A higher 40 per cent levy will continue to apply on a limited set of so-called sin goods. These include alcohol, tobacco, drugs, gambling, soft drinks, fast food, coffee, sugar and pornography.
A sin tax is a special charge imposed by the government on such products to discourage consumption and reduce associated social and health harms.
Finance Minister Nirmala Sitharaman, addressing the two-day GoM meeting earlier, said a simplified system would benefit the common man, farmers, the middle class and small businesses, while also making GST more transparent and growth-oriented.
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As part of the changes, most items currently taxed at 12 per cent will move to the 5 per cent category. Similarly, many products under the 28 per cent rate will shift to the 18 per cent bracket. The Centre has argued the move will improve compliance and reduce complexity.
The GoM also discussed the Centre’s proposal to exempt GST on individual health and life insurance premiums.
While most states supported the plan, they highlighted the need for close oversight to ensure insurance companies pass on the benefit to customers. The exemption is estimated to cost about Rs 9,700 crore in annual revenue.
The final decision on the recommendations will be taken by the GST Council at its next meeting in September.
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