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Proposed GST Rate Overhaul by Finance Minister Nirmala Sitharaman Set for August 20 Discussion

Bihar's Deputy Chief Minister Samrat Choudhary leads a Government of Mizoram meeting at Vigyan Bhawan on August 20 and 21, commencing at 12 noon, according to the latest reports.

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Overhaul proposal for Goods and Services Tax (GST) rates expected to be presented by Finance...
Overhaul proposal for Goods and Services Tax (GST) rates expected to be presented by Finance Minister Nirmala Sitharaman on August 20th.

Proposed GST Rate Overhaul by Finance Minister Nirmala Sitharaman Set for August 20 Discussion

Simplified GST Rates to Boost Economy and Ease Compliance

The Indian government is set to implement a significant overhaul of the Goods and Services Tax (GST) system, aiming to simplify the tax structure and stimulate economic growth. The proposed changes, referred to as "next-generation GST reforms" or GST 2.0, are scheduled to be presented by Finance Minister Nirmala Sitharaman before a Group of Ministers (GoM) on August 20 in New Delhi.

The reforms aim to reduce GST slabs from four to two main rates: 5% and 18%, with a special 40% rate on select "sin" goods like tobacco and ultra-luxury cars. This move is expected to reduce classification confusion, tax disputes, and increase compliance ease.

Key benefits of the GST rate revision include:

  1. Simplification and rationalization: Removing the 12% and 28% slabs and moving most goods and services under two slabs — 5% for merit goods (e.g., food, textiles) and 18% for standard goods and services.
  2. Reduced tax burden on essential goods: Many daily essentials, packaged foods, textiles, and even some mass-consumption services such as salons are expected to move to the lower 5% slab, reducing costs for consumers.
  3. Boost to MSMEs and ease of compliance: Introduction of pre-filled GST returns, faster refunds, and easier MSME registration aims to reduce the compliance burden and encourage formalization and growth in small and medium enterprises.
  4. Economic growth stimulation: Lowering tax rates on commonly used goods and services is expected to increase consumption, improve industry competitiveness, and stimulate economic activity.
  5. Cost reduction in infrastructure: The GST rate on cement is expected to reduce from 28% to 18%, potentially lowering construction costs and fostering infrastructure development.

The GST Council is scheduled to meet on September 3-4, 2025, to finalize the new slabs. Notifications for the revised rates are expected about 5-7 days post-decision, with implementation aimed around September 22, coinciding with Navratri and ahead of Diwali 2025 as a “festival gift” to citizens.

The proposed GST overhaul could lift GDP growth by 50-70 basis points, according to reports. The new GST framework envisages two main rates: 5% for essential items and 18% as the standard rate. Lower indirect taxes, such as those in the proposed GST changes, tend to improve affordability for low-income households since indirect taxes are regressive.

However, both the Centre and states may face short-term revenue pressures due to lower collections as a result of the GST overhaul. The GoM, headed by Bihar Deputy Chief Minister Samrat Choudhary, is a six-member state panel that will deliberate on the Union government's plan to move to a simplified two-slab GST structure.

The government's GST proposal is built on three pillars: structural reforms, rate rationalisation, and ease of living. The proposed changes are expected to amount to a stimulus of about 0.5-0.6% of GDP annually. Morgan Stanley, a global investment house, has flagged tax reforms, including the proposed GST revamp, as crucial in supporting India's consumption story.

In its latest report, Morgan Stanley suggests that a likely overhaul of GST rates, along with income-tax cuts, policy easing, rising job growth, and improving real wages, brightens the outlook for domestic demand. The report also predicts a possible downside of 40 basis points in CPI inflation due to the proposed GST changes.

In summary, the GST rate revision in India involves a simplified two-tier rate system (5% and 18%), reduced taxes on essentials, enhanced compliance ease, and is set for implementation around late September to October 2025. The changes aim to support consumers, businesses, and the wider economy.

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