India Plans Big GST Change: Easier Taxes, Higher Fees on Sinful Items
NEW DELHI, India – August 16, 2025:India’s government is planning a major change to its Goods and Services Tax (GST) system. It’s calling for an easier two-level tax setup instead of the current confusing one.
This plan, called “GST 2.0,” would get rid of the 12% and 28% tax rates. Most things would then be taxed at either 5% or 18%. Plus, there would be a separate, new 40% tax on sinful products. The idea is to make taxes simpler, cut down on lawsuits, and get people to spend more. The government hopes to get this done before Diwali.
Why Simplify?
Right now, there are five tax levels: 0%, 5%, 12%, 18%, and 28%. This has made things complicated for businesses and shoppers. Figuring out which tax rate applies to which item has caused lots of arguments and legal battles.
The government wants a tax system that’s easier to understand and use. Officials think that a two-level system will make it simpler for businesses to follow the rules and cut down on paperwork, mostly for smaller businesses.
This is part of the current government’s plan to make India’s economy simpler to manage. An easier tax system should bring more businesses into the system.
How Taxes Would Work
Stuff that’s now taxed at 12% or 28% would be moved to either the 5% lower rate or the 18% normal rate. This means a lot of products would be taxed less.
Things like ghee, condensed milk, and some ready-to-eat foods, now at 12%, would likely go down to 5%. This should make everyday items cheaper.
Most things currently at 28%, like air conditioners, TVs, and fridges, would go to 18%. This is a big change from the original idea of taxing fancy stuff at the highest rate.
Only a few things would stay at the highest rate, like real luxury items or bad products. This way, the government can still make money from expensive items without taxing everyday goods too much.
The New 40% Sin Goods Tax
A key part of the plan is a new 40% tax just for sinful things. This would replace the current 28% GST and other extra taxes on these items.
Sinful stuff mainly includes things like tobacco, pan masala, and sugary drinks that aren’t good for people’s health. The higher tax is meant to discourage people from buying them.
This simple tax will make things clearer for the companies that make these products. It will also make sure the government keeps making good money from them.
The money from this new tax, along with taxes from other luxury items, will probably be used to help states that might lose money from the lower tax rates. This is important for keeping the GST system fair for everyone.
What It Means for the Economy
These GST changes should have a big impact on India’s economy. Lower prices on many items will probably encourage people to buy more.
When things like fridges and washing machines go from 28% to 18%, more people will be able to afford them. This could boost demand and help businesses that make these products.
The government might lose some tax money at first. But officials think that better tax collection and more businesses paying taxes will make up for it in the long run.
Experts at places like IIT Delhi say that an easier system could mean less tax cheating. This would lead to more honest business deals and a clearer view of how the economy is doing.
The plan also tries to fix a problem where taxes on raw materials are higher than taxes on the finished product. By making tax rates simpler, the government hopes to solve this issue for manufacturers.
Business and Public Opinion
So far, business groups and leaders seem to like the plan. FICCI has said it supports the changes, calling it a good move towards a better tax system.
Businesses are happy about the lower tax on things like appliances, which they think will get people buying more. Easier tax filing is also good news for all businesses.
Some consumer groups are worried about the 40% tax on sinful items. They say that while it’s a good idea to discourage unhealthy products, it might lead to more illegal sales, especially of tobacco, to avoid the tax.
The government says it will work to stop any increase in illegal sales. Overall, most people think the benefits of simplifying the tax system are worth the risks.
What’s Next?
The proposal has been sent to a group of state finance ministers for review.
Once this group is done, it will give its report to the GST Council, which includes the Union Finance Minister and finance ministers from all states.
The GST Council needs a three-fourths majority to approve any changes. The government believes it has the support it needs, as most people agree that the GST system needs to be simpler.
If approved, the new two-level system could start as early as the last three months of 2025. The government wants to present it as a major gift to the country before the holiday season.
A Big Change
This GST 2.0 plan admits that the original GST, while a big step, needed some fixes. The complicated system, while a good start, was hard to manage.
This shows that the government is willing to change its policies when needed. Moving towards a simpler system should help create a stronger and more competitive economy.
The plan’s success will be measured by how much it helps regular people and makes India a better place to do business. The country is watching as these changes happen.
