New Delhi, Aug 15 The Finance Ministry on Friday proposed a simplified and two-slab Goods and Services Tax (GST) system, which will include a “standard” and “merit” slab as well as special rates for select items.
The proposal comes after Prime Minister Narendra Modi in his Independence Day address from the Red Fort in which he said that next-generation reforms in GST will be unveiled by Diwali, providing “substantial” tax relief to the common man and benefiting small businesses.
The government has sent its proposal for rationalising GST rates to a Group of Ministers (GoM) constituted by the GST Council.
The key areas identified for next-generation reforms include rationalising tax rates to benefit all sections of society, especially the common man, women, students, middle class and farmers.
The proposals include reducing taxes on essential commodities for the common man. This will increase affordability, boost consumption and provide greater access to essential and aspirational goods to the population.
According to the ministry, the abolition of compensation cess has created fiscal space, providing greater flexibility to rationalise and align tax rates within the GST framework for long-term sustainability.
The reform of the inverted duty structure aims to align input and output tax rates thereby reducing input tax credit accumulation. This will boost domestic value addition.
Another key proposal is to streamline rate structures by resolving classification issues, reducing disputes, simplifying compliance processes and ensuring greater parity and uniformity across sectors.
According to the ministry, “It also aims to provide long-term clarity on rates and policy direction to boost industry confidence and enable better business planning.”
Prime Minister Narendra Modi presented a detailed vision for reforms and achieving self-reliance in his Independence Day speech from the Red Fort, which includes some important reforms ranging from changes in tax rates to empowering small businesses.
Hinting at sweeping changes in the GST system, he said, “This Diwali, I am going to celebrate a double Diwali for you. The countrymen are going to get a big gift, there will be a huge reduction in GST on common household items.”
Prime Minister Modi stressed the urgent need to review GST rates and called it the “need of the hour”.
He announced, “GST rates will be reduced drastically. Tax will be reduced for the common people.”
The announcement comes at a time when the country has completed eight years of GST implementation, making it one of India’s most important tax reforms since Independence. Since its introduction in 2017, GST has integrated the country’s indirect tax structure and significantly improved the ease of doing business, especially for small and medium enterprises.
