GST Reform 2025: Essentials to Get Cheaper as Govt Proposes 5% Tax Slab

Introduction: A Landmark Step in GST Reform

In a significant development, the Central Government has proposed a major rationalisation of the Goods and Services Tax (GST) structure, aiming to simplify the tax regime and provide relief to the common man. According to government sources, most food items and daily-use products are set to be moved into the lower 5% GST slab, a move expected to boost consumption, improve ease of living, and support India’s GDP growth.

Key Proposal: Restructuring GST Slabs

The government’s plan involves scrapping the current 12% and 28% GST slabs and consolidating the structure into just two standard rates — 5% and 18%.

  • 99% of items currently in the 12% category are proposed to move into the 5% slab.

  • 90% of goods in the 28% category are set to move into the 18% slab.

  • A new 40% slab will be created exclusively for “sin goods” like tobacco and pan masala.

This rationalisation is part of a broader structural reform initiative based on three pillars:

  1. Structural Reforms – correcting inverted duty structures, resolving classification issues, and streamlining tax rates.

  2. Rate Rationalisation – simplifying the tax structure to just two main slabs while focusing on common man items.

  3. Ease of Living – ensuring faster compliance, reduced litigation, and improved taxpayer convenience.

Relief for the Common Man: Food and Daily-Use Items at 5%

The Centre’s decision to bring essential food items and products of daily use under the 5% GST slab is expected to significantly reduce household expenditure. Everyday items becoming cheaper will not only boost consumption levels but also provide direct relief to millions of families.

This step aligns with Prime Minister Narendra Modi’s Independence Day announcement of making this Diwali a “double Diwali” for citizens, signalling substantial tax relief for the common man.

Impact on Key Sectors

According to sources, the GST reforms are expected to revitalise core sectors such as:

  • Agriculture and fertilizers – through reduced taxes on farm equipment and inputs.

  • Textiles and handicrafts – by correcting duty imbalances and boosting domestic production.

  • Healthcare and insurance – through rationalised rates, improving affordability.

  • Renewable energy, automotive, construction, and transport – with simplified tax credits and reduced compliance costs.

These reforms are also expected to support MSMEs and small entrepreneurs, strengthening liquidity and improving long-term business planning.

Compliance and Ease of Doing Business

The reform package introduces several compliance-friendly measures, including:

  • 95% of GST registrations within 3 days, reducing procedural delays.

  • Pre-filled GST returns to minimise manual intervention and compliance errors.

  • Faster, automated refunds for exporters and businesses affected by inverted duty structures.

  • Elimination of mismatch-related notices, reducing litigation and compliance burden.

Such measures aim to make India’s GST system more efficient, taxpayer-friendly, and globally competitive.

Political and Policy Context

Prime Minister Narendra Modi, in his Independence Day speech from the Red Fort, highlighted the government’s commitment to next-generation GST reforms. He emphasised that reducing taxes on common man items, strengthening MSMEs, and creating a simplified tax structure would deliver significant benefits to the economy.

The proposal has been sent to the Group of Ministers (GoM) for review, and the GST Council meeting in September-October 2025 will consider the final decision.

Conclusion: A Step Towards Simplified and Inclusive Taxation

The proposed GST reforms represent a paradigm shift in India’s tax regime. By reducing slabs, cutting rates on essential items, and enhancing compliance mechanisms, the government aims to make GST simpler, fairer, and more inclusive.

If approved, these changes will not only ease the burden on households but also provide a strong push to consumption-driven growth, creating a win-win scenario for both citizens and the economy.


Location: Pune, Maharashtra, India

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