GST reforms: Slab cuts to simplify taxes, lower prices and boost consumption, says BoB report

Indian shoppers are set to profit from a big easing within the Goods and Services Tax (GST) construction, as the federal government plans to cut back tax slabs and lower charges on a number of key objects. The proposed overhaul will simplify the present four-tier construction right into a two-tier system, aiming to make items extra reasonably priced and boost consumption.The present GST system has 4 tax slabs: 5 %, 12 %, 18 %, and 28 %. Essential meals objects are taxed at nil or 5 %, whereas luxurious and sin items, together with cars, fall underneath the 28 % slab, which carries a further cess at various charges.The main aid will come from decreasing the 12 % slab to 5 % and the 28 % slab to 18 %, bringing down the tax burden on fast-moving client items (FMCGs) and durables, as per an evaluation by the Bank of Baroda. The report estimates that 11.4 % of Private Final Consumption Expenditure (PFCE) will profit straight from the adjustments.The financial institution estimated taxable consumption at Rs 150 to 160 lakh crore, with the GST reforms anticipated to boost spending by Rs 0.7–1 lakh crore, or 0.2–0.3% of GDP within the second half of FY26.“The effective tax rate is expected to come off to 14-15 per cent of taxable GST goods and services. This is estimated using our computed Rs 150-160 lakh crore taxable consumption group,” the report read. Food items will be the biggest beneficiaries, with products such as milk, cheese, oils, fats, sugar, confectionery, and processed foods moving from the 12 percent slab to 5 percent.On the non-food side, durable goods, including air conditioners, LED/LCD TVs, dishwashers, and motor vehicles, will see GST rates fall from 28 percent to 18 percent, reviving demand in the consumer durables sector, which grew just 2.6 percent in Q1 FY26 compared to 10.7 percent in the same period last year.The GST overhaul is expected to lower input costs in construction and manufacturing, reducing prices of goods like cement, tyres, and auto parts, and putting downward pressure on CPI and WPI inflation, with 8.5 percent of the CPI basket impacted. The report highlighted that the reforms coincide with a 100-basis-point repo rate cut by the RBI, which could further stimulate demand for auto loans, credit cards, and personal loans. Non-banking finance companies (NBFCs) are also expected to benefit as festive season demand rises.The GST rate rationalisation is being seen as a significant booster for consumption, providing relief at a time when global trade tensions and US tariffs pose challenges for the Indian economy. The GST council, led by Union finance minister Nirmala Sitharaman and comprising all states, is ready to meet on September 3 to 4 to focus on transferring to fewer slabs, 5% and 18% for many items and companies, and 40% for choose luxurious and sin objects.