GST Revolution: Council Gears Up to Retire 12% Slab, Aims for Simpler, Smarter Taxes

India’s Goods and Services Tax (GST) regime is poised for a major shakeup as the 56th GST Council meeting, expected in late June or early July 2025, is likely to approve the elimination of the 12% tax slab. This move aims to simplify the GST structure, address industry concerns, and streamline compliance for businesses and taxpayers.

 

Key Highlights

12% Slab to Go: The Council is expected to remove the 12% GST rate, shifting goods and services currently under this slab to either the 5% or 18% tax brackets. The decision, backed by a near consensus among officials, is part of a broader rate rationalisation agenda to reduce the number of GST slabs from four to three.

 

Impact on Goods and Services: Items such as footwear, fertilizers, textiles, and electric vehicles—currently taxed at 12%—may see their rates adjusted. Essential items may move to the lower 5% slab, while others could be elevated to 18%, potentially leading to moderate price increases for some products.

 

Simplification and Compliance: The rationalisation is aimed at minimizing classification disputes and making tax compliance easier for both taxpayers and administrators. This structural change is expected to reduce working capital blockages caused by inverted duty structures in certain sectors.

 

Compensation Cess in Focus: With the GST compensation cess set to expire in March 2026, the Council will also deliberate on its future. Proposals include either extending the cess, replacing it with new levies like a health or clean energy cess, or merging it with existing GST rates. Any replacement would require a constitutional amendment.

 

Revenue Stability: The move comes as GST collections continue to show an upward trend, providing the government with the confidence to undertake these reforms without risking fiscal stability.

 

Pending Issues: The Council is also expected to address the GST treatment of intermediary services and other long-standing industry demands in this meeting.

 

“The challenge lies in determining where current 12 per cent items will be repositioned; moving them to 18 per cent could increase consumer burden, while shifting to 5 per cent may impact revenue collections. The Council will need to carefully balance revenue neutrality with compliance simplification.”

— Shivashish Karnani, GST Division, DPNC Global

 

The upcoming GST Council meeting is set to be a landmark event, potentially ushering in a simpler, more efficient tax regime for India.

 

Source: Moneycontrol, India Today, VATUpdate, CAAlley