Prime Minister Narendra Modi has announced that citizens will receive a double bonus this Diwali through a next-generation reform in the Goods and Services Tax regime, aimed at reducing the prices of goods and services to benefit the poor and middle class. Speaking at the inauguration of two major highway projects in Delhi, Modi stated that reform for his government means the expansion of good governance and that continuous focus is being placed on reforms to improve both life and business.
He revealed that a complete framework for the GST reform has already been shared with all states and expressed hope that they would cooperate with the initiative to ensure swift implementation. Modi urged for the rapid completion of the process so that the upcoming Diwali could be made even more special for citizens. He emphasized that the reform will simplify GST further and revise tax rates in a way that benefits every household, particularly the poor and middle class, while also supporting entrepreneurs, traders, and businesspersons across scales.
According to government sources, the Finance Ministry has sent a proposal to the GST Council to introduce a two-slab GST rate structure of 5 percent and 18 percent across all goods, replacing the current four-slab system that includes 5 percent, 12 percent, 18 percent, and 28 percent. Essential goods consumed by the common man, health-related items, handicrafts, and insurance will be covered under the lower 5 percent slab. Manufactured products such as refrigerators and televisions will fall under the 18 percent slab. Sin and luxury goods including cigarettes, tobacco, sugary drinks, and pan masala will remain under a separate 40 percent GST bracket.
The government believes that this rationalisation of GST rates will significantly boost consumption and spur economic growth. The GST Council, which comprises finance ministers from all states, is expected to meet in September to approve the proposal. The reform aligns with Modi’s Independence Day address from the Red Fort, where he stated that next-generation GST reforms would be unveiled by Diwali and would provide substantial tax relief to the common man and benefit small businesses.
Key areas identified for reform include the rationalisation of tax rates to benefit all sections of society, especially the common man, women, students, middle class, and farmers. Among the proposals is the reduction of taxes on items used by the common man and aspirational goods, which would enhance affordability, boost consumption, and make essential and aspirational goods more accessible to a wider population.
The end of the compensation cess has created fiscal space, allowing greater flexibility to rationalise and align tax rates within the GST framework for long-term sustainability. The correction of inverted duty structures is also part of the reform, aimed at aligning input and output tax rates to reduce the accumulation of input tax credit and support domestic value addition.
