The central government has proposed only two tax rates with 5 percent and 18 percent in the revised system of Goods and Services Tax (GST), which is estimated to be implemented by Diwali, highly placed sources gave this information on Friday (August 15, 2025).
The central government has sent its proposal to the group of finance ministers of the states constituted to rationalize GST rates. In this, the current tax rates of 12 and 28 percent have been removed. At the same time, in addition to two tax slabs in the revised GST system, it has been proposed to have a special rate of 40 percent for luxury and harmful items.
GST Council meeting next month
Now a group of ministers will discuss this proposal and based on it will put their recommendation before the GST Council. The GST Council meeting is expected to be held next month. Currently, zero percent GST is imposed on essential food items, while five percent on daily use items, 12 percent on standard goods, 18 percent on electronics products and services and 28 percent GST on luxury and harmful items.
Sources said that only two tax rates of 5 percent and 18 percent have been proposed in this revised format prepared to replace the current indirect tax system till Diwali this year. Prime Minister Narendra Modi announced a significant reduction in GST rates till Diwali during his address on 79th Independence Day and said that this will provide relief to common people and small and medium industries.
40 percent tax on only seven items
After the approval of this proposal in the meeting of the GST Council, the supreme organization, which is deciding in matters related to GST, 99 percent of the goods included in the current 12 percent tax slab will enter 5 percent tax slab. Similarly, at present, about 90 percent of the goods and services within the range of 28 percent tax will be transferred to 18 percent tax rate under the new system.
Sources said that a special rate of 40 percent tax will be imposed on only seven items. Tobacco products will also be kept under this rate, but the total rate of taxation will remain at the current 88 percent. It is also proposed to keep online gaming as a harmful product and keep it within 40 percent tax.
Changes in GST rate benefit to business of 8 regions
According to the proposal of the Center, changes in GST rate will benefit the most for 8 areas- textiles, fertilizers, renewable energy, motor vehicles, handicrafts, agriculture, health and insurance. An official source said that the revised GST is expected to get a lot of encouragement and if this happens, the revenue loss will be compensated.
The source hoped to implement it in the beginning of the third quarter, saying, “The change in tax rates will make a difference in revenue, but it will be compensated in the next few months.” Central and state charges were merged in the current GST structure implemented from July 1, 2017. The highest 65 percent tax collection under this indirect tax system is 18 percent tax.
There is no change in the GST of these items
The highest tax rate of 28 percent applied to luxury and harmful items contributes 11 percent to GST revenue, while the rate of 12 percent contributes only five percent to revenue. Essential commodities of daily consumption levy the lowest five percent tax, which contributes seven percent to the total GST collection.
Sources said that tax will be levied on the existing rates on diamonds and precious stones like high labor-dominated and export-oriented areas. Under the GST Act, a maximum of 40 percent tax can be levied on any goods or service.
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