Additionally, sources said, “The government is also not in favour of the GoM’s proposal to have separate rates for items based on prices, such as hiking GST on luxury watches, handbags, clothes, and other high-end goods, as it believes this could complicate compliance.”
However, the government is open to increasing GST rates on less frequently used items, such as hair dryers, curlers, and select makeup kits, shifting them back to the 28% slab from the current 18%.
On the other hand, when it comes to food items, “the broad intent in the government is to reduce the rates, and it is likely to propose keeping as many commonly used items as possible in the 5% slab,” sources added.
GST rate cuts likely, says FM Sitharaman
Finance Minister Nirmala Sitharaman on Saturday hinted at an upcoming reduction in GST rates. Speaking at an ET Awards event, she confirmed that the work on rationalising GST rates is nearing completion, but declined to comment on a possible capital gains tax cut, citing the resumption of the Parliament session next week.
“I have personally taken it upon myself to review the committees’ work and take it to the GST Council for a final decision. We are very close to making some critical decisions on rate reductions and the number of slabs,” Sitharaman said.
Also read: We’re very close to finalising GST rate reductions: FM Nirmala Sitharaman
Reaffirming the government’s commitment to lowering tax rates, she added, “I have been clear that rates will come down. When GST was launched, the revenue-neutral rate was 15.8%. Since then, it has come down to 11.4%… There is no item for which the GST rate has increased. In fact, it has gone down, and we will continue this trend.”
Balancing tax reduction with revenue neutrality
Overall, sources shared that “the current rate rationalisation exercise will be based on the principles of reducing the tax burden and not solely on revenue augmentation.” The government is also evaluating whether rationalisation can be combined with the merger of slabs, while ensuring revenue neutrality and financial stability for states.
The GoM’s report on rate rationalisation is currently under review by the GST Council Chairman and Finance Minister Sitharaman. The GoM, led by Bihar Deputy CM Samrat Chaudhary, submitted its report in December 2024, and sources indicate that the government may take up the review in the next GST Council meeting.
Meanwhile, tax experts believe that any sudden overhaul of the GST rate structure could be challenging in the current economic environment.
Experts call for a phased approach
Saurabh Agarwal, Tax Partner at EY, emphasised a gradual recalibration of GST rates rather than an abrupt change.
“What we are more likely to see is a strategic recalibration of the current structure,” he said. He added that the government may consider reducing GST on essential goods from 12% to 5% and on semi-essential items from 18% to 12%, aligning taxation with affordability and consumption patterns.
Agarwal further stated, “These adjustments are crucial in a developing economy, where affordability and consumption patterns play a significant role. Furthermore, addressing the persistent issue of inverted duty structures remains a priority. This phased approach to rate revision is a pragmatic step towards the long-term goal of simplifying the GST framework. It allows for measured adjustments, minimising disruption while gradually streamlining the system. We should view these changes as part of an ongoing, dynamic process, reflecting the government’s commitment to refining and optimising the GST regime over time.”
The final shape of the GST rate rationalisation proposal will depend on the GST Council’s review, with key decisions expected at the next meeting.