INVC NEWS
New Delhi — : A significant overhaul of India’s indirect tax structure is on the horizon, with the GST Council preparing to eliminate the 12% tax slab entirely. This move is aimed at streamlining the existing four-rate system into just three simplified GST slabs—5%, 18%, and 28%—to improve efficiency and enhance tax compliance. Sources close to the development confirm that this rationalization will likely be revenue neutral while promoting a more intuitive framework for both consumers and businesses.
Why the 12% Slab Is Being Removed
The 12% GST slab currently accommodates a wide array of goods and services, but officials now believe it has lost its relevance in the evolving tax landscape. According to policy experts advising the Group of Ministers (GoM) on Rate Rationalization, this mid-tier bracket only complicates tax filing, without offering substantial benefits in terms of revenue differentiation. As a result, most of the items under this category will be migrated either to the 5% or 18% slabs, depending on their nature and essentiality.
What Falls Under the 12% GST Bracket Today?
A broad range of consumer goods, industrial products, and services fall under the 12% tax category. Here’s a closer look at what’s currently included:
Food & Beverages: Condensed milk, frozen vegetables, pasta, sausages, jams, jellies, namkeen (including bhujia), beverages made from fruit juices, curry paste, and mayonnaise.
Daily Use Products: Tooth powder, feeding bottles, carpets, umbrellas, hats, and household utensils.
Lifestyle & Fashion: Shoes under ₹1,000, contact lenses, handbags, shopping bags made from jute or cotton, bicycles, hats, and certain cane or wooden furniture.
Other Goods: Pencils, crayons, diagnostic kits, marble and granite blocks, cheese, dried fruits, dates, tanks, armored vehicles, and walkie-talkies.
Services Currently Taxed at 12%
Several essential and semi-luxury services are also taxed at 12%, such as:
Construction work
Hotel rooms priced up to ₹7,500 per day
Non-economy class air travel
Multimodal transport services
Professional and technical services
Once this slab is eliminated, these services will be evaluated to determine if they should be placed in the lower 5% slab or moved up to 18%, depending on their impact on consumers and the economy.
What Are Experts and Officials Saying?
According to a report quoting insiders from the GST policy-making team, the consensus is strong: abolishing the 12% slab simplifies compliance and reduces disputes. More importantly, they believe the changes will not dent government revenue. This is being referred to as a “revenue-neutral simplification strategy,” a move designed to foster ease of doing business while minimizing friction between state and central tax authorities.
An official familiar with the discussions confirmed, “This change will not significantly alter the government’s GST collections but will simplify classification and compliance across the supply chain.”
Support from Center and States
The proposal is gaining support not only from the central government but also from a majority of the states. With both tiers of governance on board, the reform stands a strong chance of getting passed during the next meeting of the GST Council.
The Council comprises the Union Finance Minister and Finance Ministers of all states and serves as the apex body for decision-making in India’s indirect tax structure. The upcoming meeting—expected in June or July 2025—will formally deliberate and likely finalize this proposal.
A Timeline of Key Developments
September 24, 2021: A Group of Ministers on Rate Rationalization was formed during the 45th GST Council meeting in Lucknow. Initially headed by former Karnataka CM Basavaraj S. Bommai.
November 2023: Leadership transferred to Uttar Pradesh Finance Minister Suresh Kumar Khanna.
February 27, 2024: Bihar Deputy Chief Minister Samrat Chaudhary took over as the new convener of the panel.
December 2024: Last GST Council meeting discussed early iterations of this reform.
Why This Matters for Businesses and Consumers
If approved, this change will mean less ambiguity for businesses, particularly small and medium enterprises, in determining applicable GST rates. It could also reduce litigation and classification disputes, especially for items that currently toe the line between the 12% and 18% categories.
For consumers, the move may lead to price adjustments, depending on whether a product shifts to the lower or higher slab. Essential goods like packaged water, jute bags, or basic furniture may shift to 5%, providing some price relief. On the other hand, lifestyle or processed food products could move to 18%, slightly increasing retail prices.
Looking Ahead: Simplification as the Key Driver
The GST Council’s pivot toward a three-slab structure reflects its broader goal of streamlining India’s indirect tax regime. The removal of the 12% slab is not merely a fiscal maneuver but a step toward a simpler, more transparent, and more effective GST system that benefits both the government and the economy.
