As expected, the GST Council’s meeting took place along the lines announced by Prime Minister Modi. Eight years after the introduction of GST, reforms are now being proposed, driven partly by global developments such as additional tariffs imposed by US President Donald Trump, and domestic economic challenges. While the economy was growing rapidly, job creation and market activity were not keeping pace. Restrictions on exports to the United States have made it difficult for industries to survive, and there is uncertainty in global markets leading to fears of recession. In this scenario, boosting market activity requires encouraging consumer spending.
The festive period from August to October sees an average turnover of around ₹4 lakh crore, and the government wants to stimulate spending during this period. Similar to how producers offer discounts, the GST reforms aim to provide relief without significantly reducing government revenue. Finance Minister Nirmala Sitharaman announced major changes to simplify the GST system, making it more transparent and consumer-friendly.
Under the new structure, almost all essential daily items will fall under a 5% tax slab — including soap, shampoo, toothpaste, tea, sugar, spices, and affordable clothing — offering relief to ordinary consumers. High-end products such as refrigerators, televisions, washing machines, and cars up to 1200cc will be moved to an 18% slab from the earlier 28%, making them more affordable. Some items will be exempt from GST altogether.
Health insurance, previously ignored by citizens due to high costs and GST, is expected to benefit as the government removes taxes on food items like bread, parathas, and dairy products, as well as private insurance. Simultaneously, unhealthy products like tobacco, gutkha, cigarettes, and alcohol will face a 40% tax to discourage consumption.
The reforms may lead to an estimated loss of ₹1.1 to ₹1.8 lakh crore annually for the government, but increased market activity is expected to compensate for it. While state governments demand compensation for potential revenue loss, the central government argues that greater turnover will offset shortfalls.
The reforms are set to take effect on Ghatsthapana, a significant day that aligns with the festive shopping season, ensuring maximum consumer participation. With economic uncertainty and global trade challenges in mind, the government aims to stimulate domestic demand while encouraging local goods.
Though the central government’s coffers have recently been bolstered by dividends from public sector banks like the Reserve Bank of India and State Bank of India, state governments face pressure as their guaranteed annual revenue growth has ended. With rising demands for financial security, the reforms are a balancing act between central and state interests.
Since its launch on 1 July 2017, after 17 years of planning, GST has simplified tax structures that previously included multiple levies such as excise duty, service tax, VAT, entry tax, and luxury tax. GST has nearly doubled tax collections over five years, contributing 44% to the national budget and becoming the backbone of India’s fiscal structure. As of April 2025, over 1.51 crore active GST registrations reflect its growing adoption among businesses.
However, petroleum products and alcohol remain outside the GST framework, posing continued challenges for tax integration.
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