India to Introduce Two GST Slabs with Special Rates for Select Items | Explained

On the occasion of India’s 79th Independence Day, the Ministry of Finance revealed plans to rationalise Goods and Services Tax (GST) rates with the introduction of a simpler tax regime. The proposal aims to cut down the current multi-slab structure and move towards just two primary categories — ‘standard’ and ‘merit’.

Finance Ministry Announces Simplified GST Structure

In a post on X (formerly Twitter), the ministry said:

"Essentially move towards simple tax with 2 slabs – standard and merit. Special rates only for select few items."

This means that while most goods and services will fall under the two simplified categories, certain products will continue to attract special tax rates.

GST Council to Take Final Call

The Finance Ministry has already forwarded its recommendations on GST rationalisation to the Group of Ministers (GoM) for a detailed review. Once the GoM finalises its inputs, the GST Council will deliberate on the matter in its upcoming meeting.

Officials have indicated that the government intends to implement these reforms at the earliest, enabling citizens and businesses to benefit from a simpler tax structure within the current financial year.

The ministry reaffirmed its stance, stating:
"The Government reaffirms its commitment to evolving the GST into a simple, stable, and transparent tax system."

PM Modi’s Vision: Next-Generation GST Reforms

Prime Minister Narendra Modi, addressing the nation from the Red Fort on 15 August 2025, underscored the importance of easing the tax burden for citizens.

"We are bringing next-generation GST reforms. This will reduce the tax burden across the country," PM Modi said, highlighting the government’s intent to streamline taxation and spur economic growth.

Current GST Slabs in India

As of 15 August 2025, India follows a multi-slab GST structure with effective rates of 5%, 12%, 18%, and 28% on most goods and services. However, certain commodities such as gold and silver attract different rates, while alcohol falls under the Excise Department. Additionally, products like cigarettes and luxury cars are subject to higher cess and additional tax rates.

The government’s proposed move to merge slabs and simplify GST rates is in line with its long-term strategy to reduce compliance burden and make the tax regime more transparent and predictable.

Broader Economic Impact

Experts suggest that simplifying GST into two slabs will not only ease business operations but also encourage greater tax compliance, leading to better revenue collection. A more uniform structure may also help reduce disputes, while special rates on selected items ensure that luxury and sin goods continue to contribute higher revenues.

Conclusion

The Finance Ministry’s announcement of a simplified two-slab GST structure marks a significant step toward making India’s tax regime more transparent, predictable, and business-friendly.

By rationalising the current multi-slab system into ‘standard’ and ‘merit’ categories, the government aims to reduce complexity and compliance burden, allowing businesses to operate with greater efficiency while ensuring consumers face fewer ambiguities in pricing.

The continuation of special rates for select items such as luxury goods and sin products strikes a balance between revenue protection and fairness in taxation. If implemented, this reform could enhance tax compliance, reduce litigation, and strengthen revenue collection while spurring economic growth.

Aligned with Prime Minister Narendra Modi’s vision of next-generation reforms, the simplified GST is not just a fiscal measure but a step toward building a stable, progressive, and citizen-friendly economy. The GST Council’s upcoming decision will be crucial in shaping the future of India’s tax landscape.