Big GST shakeup: Only 2 slabs, lower taxes, and zero hassle returns in new blueprint

Published in Business and Finance on Friday, August 15th 2025 at 2:37 GMT by Business Today
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The plan is now being reviewed by a Group of Ministers (GoM), and implementation is targeted within the current financial year just in time for Diwali.

Major Overhaul Proposed for India's GST System: Two Slabs, Reduced Rates, and Simplified Compliance

India's Goods and Services Tax (GST) regime, introduced in 2017 as a landmark reform to unify the country's fragmented tax structure, is on the cusp of a significant transformation. A new blueprint, reportedly under consideration by the government, aims to streamline the system by reducing the number of tax slabs to just two, lowering overall tax rates, and introducing hassle-free return filing processes. This proposed shakeup could mark a pivotal shift towards making GST more business-friendly, consumer-oriented, and efficient, addressing long-standing criticisms of complexity and high compliance burdens.

At the heart of the blueprint is the simplification of the tax slab structure. Currently, GST operates with multiple slabs—5%, 12%, 18%, and 28%—along with special rates for certain items like gold and a cess on luxury goods. This multi-tiered system has often been blamed for confusion, classification disputes, and inefficiencies in supply chains. The new proposal envisions consolidating these into just two primary slabs: a standard rate and a lower rate for essential goods. While exact percentages haven't been finalized, sources suggest the standard rate could hover around 12-18%, with the lower slab potentially at 5-8% for necessities such as food items, medicines, and basic consumer products. This reduction aims to minimize arbitrage opportunities where businesses exploit slab differences to reduce tax liabilities, thereby fostering a more uniform and predictable tax environment.

Lowering tax rates forms another cornerstone of the reform. The blueprint emphasizes reducing the overall tax burden to boost consumption and economic growth, especially in a post-pandemic recovery phase where inflation and sluggish demand have been persistent challenges. By bringing down rates, particularly on everyday items, the government hopes to make goods more affordable, stimulating domestic demand and encouraging compliance. For instance, items currently taxed at 18% or 28% could see significant reductions, potentially benefiting sectors like automobiles, electronics, and consumer durables. This move aligns with broader economic goals, such as achieving a $5 trillion economy, by making India a more attractive destination for investments. Experts argue that lower taxes could lead to higher revenue through increased volumes, invoking the Laffer Curve principle where optimal taxation maximizes collections without stifling activity.

One of the most innovative aspects of the blueprint is the introduction of "zero-hassle" returns. Compliance has been a major pain point since GST's inception, with businesses, especially small and medium enterprises (SMEs), grappling with frequent filings, input tax credit mismatches, and audits. The new system proposes automating much of the process through advanced technology integration. Imagine a scenario where returns are pre-filled based on invoice data uploaded in real-time via the GST Network (GSTN). Businesses would only need to verify and submit, eliminating the need for manual data entry and reducing errors. Additionally, the blueprint suggests quarterly filings for smaller entities instead of monthly ones, further easing the burden. This tech-driven approach could incorporate artificial intelligence for anomaly detection, ensuring faster refunds and minimizing human intervention. The goal is to make GST compliance as seamless as filing income tax returns under the new regime's faceless assessment.

The rationale behind these changes stems from feedback gathered over the past seven years. The GST Council, comprising central and state finance ministers, has periodically reviewed the system, but calls for radical simplification have grown louder amid economic slowdowns and global uncertainties. For example, during the COVID-19 crisis, temporary relaxations in filings highlighted the need for permanent reforms. The blueprint also addresses revenue concerns: while initial rate cuts might cause short-term dips in collections, proponents believe broader tax base expansion—through better compliance and inclusion of currently exempt sectors—will compensate. States, which share GST revenues, are likely to be consulted extensively to ensure fiscal federalism isn't compromised.

Industry reactions to the proposal have been largely positive, with business leaders hailing it as a game-changer. Representatives from confederations like FICCI and CII have long advocated for fewer slabs to reduce litigation and improve ease of doing business. For consumers, lower taxes could translate to cheaper products, potentially curbing inflation. However, challenges remain. Merging slabs might require careful calibration to avoid burdening low-income groups, and transitioning could involve initial disruptions in supply chains. There's also the question of compensating states for any revenue shortfalls, possibly through extended cess mechanisms or central grants.

If implemented, this blueprint could position GST as a model indirect tax system globally, drawing parallels with simplified VAT regimes in countries like Singapore or New Zealand. It reflects the government's commitment to reforms under initiatives like 'Make in India' and 'Atmanirbhar Bharat,' aiming to foster a vibrant, competitive economy. As discussions progress, stakeholders anticipate the GST Council's next meeting to deliberate on these ideas, potentially rolling out pilots in select sectors before nationwide adoption.

In essence, this proposed GST shakeup isn't just about tweaking rates; it's a comprehensive blueprint for efficiency, equity, and growth. By reducing slabs to two, slashing taxes, and automating returns, India could finally realize the full potential of its 'One Nation, One Tax' vision, making it simpler for businesses to thrive and for the economy to accelerate. The coming months will be crucial in shaping whether this bold reform becomes reality, but the direction signals a proactive approach to addressing systemic flaws and adapting to evolving economic needs. (Word count: 812)

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Big GST shakeup: Only 2 slabs, lower taxes, and zero hassle returns in new blueprint - BusinessToday

Major Overhaul Proposed for India's GST System: Two Slabs, Reduced Rates, and Simplified Compliance