GST Overhaul | Govt to Scrap 12% & 28% Tax Slabs, Add 40%

The government has announced an overhaul of the GST system that could change the way we pay the goods and services tax in India. In this overhaul, the 12% tax slab and 28% tax slab may soon be irrelevant. Most items will be taxed at 5% or 18%, making it easier for businesses and consumers alike.

The government will still create a new slab called the 40% tax slab, but it will apply to very few “sin goods” such as tobacco only.

What the GST Reforms Mean for You

The newly proposed GST reforms are intended to simplify and rationalize the tax structure. Goods previously taxed at 12% – including processed food, healthcare products, textiles, and kitchenware – will be mostly headed to either 5% or 18%. Additionally, many products currently in the 28% tax basket – including automobile, household, and personal care products will also be changing to 18%.

For consumers, this could mean lower prices on important items, while businesses – particularly small businesses and start-ups – will benefit from simpler registration processes and faster refunds, allowing them to mitigate hassles and improve cashflow.

Will There Be a Revenue Gap?

Officials have admitted that this GST overhaul could cause a short-term revenue gap, as goods move from higher tax slabs to lower ones. However, the government believes this gap will be recovered through higher demand and more spending.

Experts also point out that fixing tax mismatches—like higher tax on raw materials compared to finished products—will improve investment in sectors such as fertilizers, textiles, and healthcare. This, in turn, will boost economic growth.

GST Council to Take Final Call

The proposal has been sent to a ministerial group under the GST Council, led by Bihar Deputy CM Samrat Chaudhary. The GST Council is expected to discuss and finalize the plan in its next meeting, likely in the coming months.

Tax experts believe that moving to a simpler two-rate structure with a separate 40% tax slab for sin goods is a sign of a maturing tax regime. It reduces confusion, promotes ease of business, and makes the goods and services tax system more transparent.

Why This GST Overhaul Matters

For ordinary people, the GST reforms could bring cheaper goods, especially for middle-class families and rural households. For businesses, fewer slabs mean fewer disputes and more predictable taxes.

The removal of the 12% tax slab and 28% tax slab will also align with the government’s goal of creating a simpler, growth-friendly tax system.

Prime Minister Narendra Modi called this move a “double Diwali gift”—lower taxes on common goods and a boost for small businesses. While the short-term revenue gap may worry some, the long-term goal is clear: higher economic growth and a simpler, fairer goods and services tax for everyone.