GST Council Meeting: Major Tax Reform Likely, Prices of Cars, Appliances and Essentials May Drop

New Delhi, September 3, 2025 – The two-day GST Council meeting that began in the national capital on Tuesday has drawn nationwide attention. This session is expected to deliver one of the most significant reforms since the implementation of the Goods and Services Tax (GST) in 2017. The government is considering a major restructuring of tax slabs—reducing the current four-tier structure to just two. If approved, this could lead to simpler compliance, greater transparency, and reduced tax burdens for the common people.

Four Tax Slabs May Shrink to Two

Currently, GST operates under four main slabs: 5%, 12%, 18%, and 28%. The proposal on the table suggests eliminating the 12% and 28% categories. The new model would primarily operate on two slabs—5% for essential and common-use goods, and 18% for most manufactured items and services.

This reform comes shortly after Prime Minister Narendra Modi’s Independence Day address, in which he highlighted the government’s intent to make GST more business-friendly, transparent, and people-centric. Sources suggest that while most luxury and sin goods may continue to attract a higher levy, some of them could see a revised rate of up to 40%.

Proposed GST Structure at a Glance

• 5% Slab: Essential goods such as food items, fertilizers, tractor tires, and basic toiletries.

• 18% Slab: Manufactured goods, services, and most household appliances.

• Luxury & Sin Goods: Cars above 1200cc, premium motorcycles, alcohol, tobacco, and packaged cement may continue to face higher taxation, though in a revised bracket.

• Special Rates (0.25% – 3%): On select items such as precious metals, remain unchanged.

Government Revenue Outlook

Currently, 67% of GST revenue comes from the 18% slab, making it the most significant contributor. The 5% category accounts for around 7% of collections, while the 12% and 28% slabs generate 14% and 11% respectively. With the removal of the 12% and 28% slabs, the government expects to simplify revenue channels without reducing overall tax collection efficiency.

Current Revenue Share from Slabs:

• 5% – 7%

• 12% – 14%

• 18% – 67%

• 28% – 11% (including compensation and special rates)

Likely Price Reductions for Consumers

If approved, the revised rates will bring noticeable price cuts across several categories. Everyday essentials and household items could become significantly cheaper, benefiting both rural and urban consumers.

Expected Price Drops:

• Small Cars (up to 1200cc): Tax reduced from 28% to 18%

• Two-Wheelers (up to 350cc): From 28% to 18%

• Three-Wheelers & Ambulances: From 28% to 18%

• Tractor Tires: From 18% to 5%

• Fertilizers & Pesticides: From 12% to 5%

• Air Conditioners & Washing Machines: From 28% to 18%

• Toothpaste & Toiletries: From 18% to 5%

• Butter, Dry Fruits & Snacks: From 12% to 5%

• Cornflakes, Biscuits & Ice Cream: From 18% to 5%

• Packaged Cement: From 28% to 18%

What This Means for Businesses and Citizens

For businesses, the move is expected to simplify compliance, reduce disputes over classification, and streamline tax filing. For citizens, the direct benefit will be reduced prices on frequently used goods ranging from food products to consumer durables.

Economists believe that while the government may temporarily lose some revenue from high-tax goods, the broader tax base and increased consumption will compensate for it in the medium term. The step could also boost consumer demand, particularly in the automobile and FMCG sectors, which have been under stress.

Conclusion

The GST Council’s decision, expected to be finalized on September 4, could mark the most transformative reform in India’s tax system since GST’s inception. By collapsing the four-slab structure into two, the government aims to make taxation fairer, more transparent, and easier for both consumers and businesses. If approved, the reform will not only lower prices on essential goods but also give a strong push to economic activity.