The new GST regime previewed by Prime Minister Narendra Modi in his Independence Day handle would be consumer-centric, with explicit emphasis on the poor, the MSMEs, the center class and the farmers, senior authorities sources stated on Sunday (August 17, 2025).
The new two-tier Goods and Services Tax (GST) construction of 18% and 5% charges will have the dual goal of creating charges and processes easier and extra rational, because it was initially meant to be, the sources stated.
‘More equitable taxation’
“This has been in the making for a while. Our learning from the last eight years is going into this, and this will be a fundamental change in the template of taxation,” one senior functionary stated. “The new GST regime will make our taxation more equitable, and will see reduced taxes on what these four categories consume. The template will be more from the consumers point of view, and it will be put to and explained to the States from the consumers point of view.”
The Centre expects any discount in revenues that this will likely trigger to be quickly offset by a brand new buoyancy within the economic system anticipated from fee rationalisation and course of simplification. “Reduced rates will not lead to reduced revenues, and we expect compliance and collection going higher,” an official stated, including that the forthcoming tax regime will be “fiscally sustainable”.
Most of the gadgets within the 28% fee of GST will transfer to 18% and “a few” will go to 40%, which will apply to distinctive gadgets, termed “sin goods”, sources stated.
“Revenues may fall in the very short run but we expect change in consumption and ease of compliance to make up for it. Thus, it will be a fairly fiscally sustainable exercise,” stated a supply.
Deepavali deadline
The Centre expects the States to be on board with the proposals in time for the Deepavali — October 20 — deadline it has set for itself to set them in movement. In a press launch following the PM’s speech, the Ministry of Finance stated the Centre would be partaking with the State governments within the subsequent weeks, within the run-up to the subsequent GST Council assembly.
Two Groups of Ministers (comprising representatives of the State governments) — one on fee rationalisation and one other on compensation cess — will need to approve the small print earlier than they go to the GST Council for approval. GST has been an ongoing matter of battle between Opposition-ruled States and the Centre, however the latter doesn’t anticipate resistance to its revamp proposals.
“The concerns regarding any potential revenue losses are not theirs (Opposition-ruled States) alone to tackle. The Centre and the States should all work together to expand the revenues, using this opportunity. I do not think anyone will or can oppose the proposed reduction in rates,” the functionary stated.
They additionally added that, because the Centre doesn’t have any consultant within the GoM on fee rationalisation, if the GoMs resolve towards the Centre’s proposal, it could seem like the States are deciding towards decreasing taxes for the widespread man.
Both GoMs, adopted by the GST Council, are anticipated to fulfill within the coming weeks. One supply stated the compensation cess will quickly stop, earlier than its authorized end-date of March 31, 2026. While it was initially set to stop in 2022, its period was prolonged thereafter to repay the mortgage taken to compensate States because the cess collections themselves had been hit by the COVID-19 pandemic.
That mortgage will be repaid earlier than time. However, this additionally creates an issue for the Centre because the cess additionally applies on sin items like tobacco.
“If the cess ends, then this would substantially lower the effective rate of tax on tobacco, gutka, and other sin goods,” the supply defined. “And this is something the Centre cannot be doing. So, this was yet another reason why the GST revamp needed to be done soon.”
That the GST reforms are occurring amid international uncertainties and tariff threats by the United States is mere coincidence, in keeping with the sources.