The GST Council has decided to bring consumer goods such as shoes and clothes priced up to Rs 2,500 under the lowest GST tax bracket of 5 percent, expanding the scope from the previous threshold of Rs 1,000. The move is part of a broader reform to simplify the GST structure and reduce the tax burden on essential and widely consumed items.
The Council has finalised the rollout of a two-slab GST regime, retaining only the 5 percent and 18 percent brackets. However, the higher slab of 40 percent will continue to apply to sin goods such as cigarettes, tobacco, sugary drinks, and luxury items purchased by high-income groups.
Goods previously taxed at 12 percent and 28 percent will now be shifted to the lower slabs, reducing the overall number of tax rates from four to two. This rationalisation is expected to make consumer goods more affordable, increase demand, and stimulate economic growth.
The original four-tier GST structure of 5, 12, 18, and 28 percent was implemented on July 1, 2017, when the Centre and states agreed to subsume most indirect taxes into a unified system. A compensation cess ranging from 1 to 290 percent was levied on luxury and demerit goods to offset revenue losses for states, but this mechanism ended in June 2022.
Prime Minister Narendra Modi had announced in his Independence Day address that the government would pursue significant GST reforms focused on structural changes, rate rationalisation, and ease of living. The new framework aims to benefit all sections of society, including the common man, women, students, middle class, and farmers.
The reforms also target reduction in classification-related disputes, correction of inverted duty structures in specific sectors, and greater rate stability. The simplified GST regime is expected to enhance ease of doing business and strengthen key economic sectors.
