Reports from August 15, 2025, indicate that the Indian government is proposing a significant overhaul of the Goods and Services Tax (GST) structure. This plan, announced by Prime Minister Narendra Modi during his Independence Day speech, is being touted as a “Diwali gift” to the public.

Key highlights of the proposed GST reforms include:

  • Two-Slab System: The current four-slab system (5%, 12%, 18%, and 28%) would be simplified into a two-slab system of 5% and 18%.
  • Rate Reduction: Under this new structure, about 99% of the items currently taxed at 12% are proposed to be moved to the lower 5% bracket. Similarly, most items in the 28% slab would be shifted to the 18% category.
  • Special Rate for “Sin Goods”: A special 40% rate is proposed for luxury and “sin goods” like tobacco.
  • Boost to Consumption: The government expects that these reforms, by reducing the tax burden on everyday items, will boost consumption and stimulate economic growth.

The proposal has been sent to a Group of Ministers (GoM) of the GST Council for review. A meeting of the GST Council is expected to be held in September or October to consider the proposal, with the goal of implementing the changes before Diwali.