Centre proposes two-slab GST at 5% and 18% with 40% top rate

The Centre on Friday signaled a sweeping overhaul of the Goods and Services Tax regime, proposing a two-slab structure at 5% and 18% with a separate 40% top rate for a defined list of demerit and luxury goods. The move, described by officials as “next-generation GST,” aims to simplify rates, reduce classification disputes and plug revenue gaps, while ensuring that essential items remain affordable. The reform is slated for rollout before the Diwali festival, subject to approval by the GST Council after discussions among state finance ministers.

Under the proposed framework, the vast majority of items presently taxed at 12% would move to 5%, and most goods in the 28% bracket would shift to 18%. A small set of about 57 items, including certain sin and luxury goods, would face a separate 40% rate. Petroleum products are expected to remain outside the GST regime. The plan envisions scrapping the current 12% and 28% slabs, thereby reducing the scope for disputes that have long plagued classification and billing across sectors. Observers say the reform could yield meaningful gains in consumption and efficiency, while presenting a revenue challenge for the Centre and states alike.