GST Council Approves Two-Tier Structure; New 5% and 18% Rates Effective Sept 22

Goods and Services Tax (GST) Council on Wednesday gave its nod to a historic overhaul of India's indirect tax regime, settling on a two-tier rate system of 5% and 18%, which will be implemented from September 22, 2025.

The move, made at the 56th meeting of the Council, which was chaired by Union Finance Minister Nirmala Sitharaman, was termed a "consensus-based" reform by Bihar Deputy Chief Minister Samrat Choudhary, who affirmed that all the states were on board.

But the shift has drawn fierce argument over revenue implications, with West Bengal Finance Minister Chandrima Bhattacharya threatening that the rationalisation would cause a whopping revenue loss of ₹47,700 crore. Uttar Pradesh Finance Minister Suresh Khanna further stated that no decision had been made on the tax incidence on demerit goods, where a duty of up to 40% continues to be debated.

States Divided over Revenue versus Reform

While several states flagged potential losses, others backed the reforms wholeheartedly. Andhra Pradesh Finance Minister P. Keshav said the Chandrababu Naidu-led government “strongly supports next-generation GST reforms” that align with Prime Minister Narendra Modi’s “Diwali gift” promise to lower costs for the poor.

Assam Chief Minister Himanta Biswa Sarma also said that his government is in favour of the Centre's two-slab format, which would simplify compliance and favour the consumer. "Whatever the Prime Minister has uttered must be pursued," he emphasized, while confirming Finance Minister Ajanta Neog's presence at the deliberations in New Delhi.

Conversely, Jammu and Kashmir Chief Minister Omar Abdullah issued a warning that the reforms would reduce the UT's GST revenue by 10–12% and deteriorate its fiscal crisis after the April 2025 Pahalgam terror attack. Abdullah demanded measures to provide fiscal stability to vulnerable states and UTs. 

Key Decisions and Sectoral Impact

Among the particular reliefs, the Council sanctioned reducing GST on apparel and footwear worth up to ₹2,500 from the present 12% to 5%, widening the relief beyond the previous ₹1,000 limit.

The rationalisation is also set to ease the cost burden in housing and real estate, with developers accepting lower levies on materials such as cement and steel. Industry experts such as Stonecraft's Kirthi Chilukuri, BPTP CEO Manik Malik, and Anant Raj CEO Aman Sarin averred that the reform would lower project costs, increase transparency, and boost demand, especially in the affordable housing category.

Corporate voices like Whiteland Corporation's CMD Sudeep Bhatt and Bhumika Group CMD Uddhav Poddar emphasized the two-slab system has the potential to spur consumption, attract investment in commercial realty, and consolidate India's global infrastructure attractiveness.

Protection of Revenues Still in Sight

Industry optimism aside, fears of state revenues ruled the day. Karnataka, Punjab, and West Bengal insisted on definite revenue loss estimates and protection guarantees. Experts also sounded a note of caution:

EY India's Saurabh Agarwal put estimated revenue loss at no more than ₹80,000 crore, as lower rates would choke tax evasion.

Former CBIC Chairman Najib Shah proposed 2–3 years' compensation horizon for states, but noted that rationalisation is "essential but states' fiscal concerns need to be balanced with that".

Rastogi Chambers' Abhishek Rastogi cautioned that while the sunset clause may offer a reprieve, anti-profiteering rules could be resuscitated via new notifications and keep industry apprehensive.

The Centre has, however, hoped that consumer benefits are transferred, with the ex-CBIC head Shah warning that the market is "price-sensitive" and industry needs to assure compliance.

What's Ahead

The GST Council move is the biggest reshuffling since the tax was implemented in 2017, with the intention of making compliance for businesses easier, lowering tax incidence on households, and rationalizing rates across the board.

With slabs currently compressed to only two rates — 5% and 18%, the action is likely to reduce prices on mass-consumption items, simplify tax management, and resolve the long-standing problem of duty inversion in textiles and other sectors.

But. While states prepare for short-term revenue shocks. The ultimate test, however, will be whether or not these reforms manage to balance fiscal prudence with consumer relief — and whether the industry passes on the benefits to the end customer.

Also Read: Modi Calls on States to Support Implementation of Proposed GST Reforms