The 56th meeting of the Goods and Services Tax (GST) Council commenced in New Delhi on September 3, 2025, with Union Finance Minister Nirmala Sitharaman chairing the two-day deliberations. The Council is expected to take up one of the most significant overhauls of the GST regime since its inception in July 2017, with rate rationalisation, a proposed two-slab structure, and the future of the compensation cess topping the agenda.
The meeting follows Prime Minister Narendra Modi’s Independence Day address, where he announced “next-generation GST reforms” aimed at simplifying compliance, reducing litigation, and lowering the overall tax burden on consumers. The proposals, vetted by a Group of Ministers (GoM) last month, are now up for final approval.
🧭 Key Reform Proposals Under Discussion
| Reform Area | Proposal Summary | Expected Impact |
|---|---|---|
| Rate Rationalisation | Merge 12% and 28% slabs into 5% and 18% | Simplified structure, reduced consumer prices |
| Two-Slab GST Structure | Adopt dual rate system: 5% (lower), 18% (standard) | Easier compliance, fewer disputes |
| Compensation Cess Future | Reassess cess on luxury/sin goods post-June 2022 | Revenue sustainability for states |
| GST on Insurance Premiums | Exempt health and life insurance from GST | Relief for middle-class policyholders |
| GST on EVs and Electronics | Reduce rates to boost adoption and festive sales | Stimulate demand, support Make in India |
According to official sources, nearly 175 items could see a reduction in GST rates if the proposals are accepted, ranging from processed foods and personal care products to electronics and automobiles.
🔍 Proposed Two-Slab GST Structure: Simplification in Focus
The GoM has recommended scrapping the existing four-tier GST structure (5%, 12%, 18%, and 28%) in favour of a simplified two-slab system. Under the new model:
- Most items in the 12% slab would move to 5%
- Items in the 28% slab (excluding sin goods) would shift to 18%
- A special 40% slab would apply to 6–7 items, including tobacco, pan masala, and high-end automobiles
| Current Slab | Proposed Slab | Items Affected |
|---|---|---|
| 12% | 5% | Toothpaste, shampoo, processed foods |
| 28% | 18% | ACs, refrigerators, TVs, automobiles |
| 40% (new) | 40% | Tobacco, pan masala, luxury cars |
Officials estimate that the average GST rate across all items, currently around 11.5%, could drop below 10% if the rationalisation is implemented.
📉 Revenue Implications and State Compensation
While the reforms are expected to benefit consumers, they may lead to a revenue shortfall of ₹80,000 crore annually for the Centre and states combined. The compensation cess mechanism, originally designed to offset state revenue losses for five years (ending June 2022), is now under review.
| Revenue Impact Area | Estimated Loss (₹ crore) | Proposed Mitigation Strategy |
|---|---|---|
| 12% to 5% slab migration | ₹45,000 | Increased compliance, broader base |
| 28% to 18% slab migration | ₹35,000 | Higher consumption, festive demand boost |
| Insurance premium exemption | ₹12,000 | Offset via cess on sin goods |
Some opposition-ruled states have demanded an extension of the compensation mechanism or a new formula to ensure fiscal stability.
🔥 Items Likely to See GST Rate Cuts
The Council is expected to approve rate cuts on a wide range of consumer and industrial goods, which could lead to price reductions ahead of the festive season.
| Category | Current GST Rate | Proposed Rate | Examples |
|---|---|---|---|
| Processed Foods | 12% | 5% | Jam, pickles, murabba, chutney |
| Personal Care | 18% | 5% | Shampoo, toothpaste, talcum powder |
| Electronics | 28% | 18% | TVs, ACs, refrigerators |
| Automobiles | 28% | 18% | Tractors, mid-range vehicles |
| Ready-to-Eat Items | 12% | 5% | Packaged snacks, frozen meals |
The move is expected to boost consumption and support manufacturing, especially under the Make in India initiative.
🧠 Expert Commentary and Industry Sentiment
| Expert Name | Role | Comment |
|---|---|---|
| Meera Iyer | Tax Policy Analyst | “The two-slab structure is a long-awaited reform that simplifies compliance.” |
| Rajiv Bansal | Retail Sector Consultant | “Rate cuts will boost festive demand and ease inflationary pressure.” |
| Dr. Rakesh Sinha | Fiscal Economist | “Compensation cess must evolve to support state revenues sustainably.” |
Industry bodies such as CII and FICCI have welcomed the proposals, calling them “consumer-friendly and growth-oriented.”
📦 GST Council Voting Dynamics
Decisions in the GST Council require either consensus or weighted voting. The Centre holds 33% of the vote, while states collectively hold 67%. While most states have supported the rate rationalisation, some have raised concerns over revenue loss and compensation.
| Stakeholder | Voting Share (%) | Position on Reforms |
|---|---|---|
| Central Government | 33% | Strongly in favour |
| BJP-ruled States | ~30% | Supportive of simplification |
| Opposition States | ~37% | Seeking compensation clarity |
The final decision will depend on consensus-building and potential trade-offs between rate cuts and fiscal support.
📌 Conclusion
The 56th GST Council meeting marks a pivotal moment in India’s tax reform journey. With rate rationalisation, a simplified two-slab structure, and the future of compensation cess on the table, the Council’s decisions could reshape the GST landscape for years to come. As stakeholders weigh the trade-offs between consumer relief and revenue sustainability, the outcome will determine whether India’s GST regime evolves into a more efficient, equitable, and growth-friendly system.
—
Disclaimer: This article is based on publicly available government briefings and media reports as of September 3, 2025. It is intended for informational purposes only and does not constitute financial, legal, or policy advice.
