Modi Calls on States to Support Implementation of Proposed GST Reforms

Prime Minister Narendra Modi on Sunday said the Centre has circulated the draft of the next-generation GST reforms to states and sought their cooperation for implementation ahead of Diwali.

He stated that the proposed reforms in GST would benefit the poor and middle-class, as well as small and large businesses.

Speaking at an event after inaugurating two expressways, Modi said the government aims to simplify the GST law and revise tax rates to make it more efficient and transparent.

The Prime Minister had first announced the proposal to reform the GST framework during his Independence Day address on August 15 from the Red Fort.

“For us, reform represents the advancement of good governance, which is why we prioritise continuous improvement. In the near future, we will implement measures aimed at making life and business operations smoother and more convenient,” Prime Minister Narendra Modi said.

He added, “As part of this vision, next-generation reforms will be introduced under the GST framework. This Diwali, these GST reforms will provide a double bonus to the people, enhancing their celebrations.”

Modi further stated that the Centre has already circulated the draft proposal of the GST reforms to the states. “I hope all states will cooperate with the central government’s initiatives and complete the process promptly, ensuring that the Diwali festival is even more special,” he said.

The objective of the reform, Modi said, is to simplify the GST system and revise tax rates. Under the current structure, essential food items are taxed at 0%, daily-use products at 5%, standard goods at 12%, electronics and services at 18%, and luxury and sin goods at 28%.

The proposed reform seeks to replace this with a two-slab regime of 5% and 18%, along with a special 40% top rate for 5–7 demerit goods. If approved by the GST Council, this new structure will eliminate the existing 12% and 28% slabs, streamlining the GST framework.

After nearly six months of deliberations and dozens of meetings, the proposed GST changes have been designed to minimise future demands for tax adjustments and prevent the accumulation of input tax credit (ITC) in the system.

Under the new structure, nearly 99% of items in the 12% slab, including butter, fruit juices, and dry fruits, would move to a 5% rate. Meanwhile, around 90% of goods are currently taxed at 28%, such as electronics like ACs, TVs, refrigerators, and washing machines, as well as items like cement, which would shift to the 18% slab.

The reform comes amid rising global trade tensions, with US President Donald Trump imposing a 25% tariff on all Indian exports to the US, planning to double it to 50% from August 27 over India’s oil purchases from Russia. The tariffs are expected to affect roughly USD 40 billion of non-exempt Indian exports, including gems and jewellery, textiles, and footwear.

The GST Council is slated to meet next month to discuss the proposed tax reforms. Currently, about 20% of items, such as packaged food and beverages, apparel, and hotel accommodation, are taxed at 12% GST, contributing 5–10% of overall consumption and 5–6% of GST revenue.

Shifting these items to a lower 5% slab could result in short-term revenue loss. However, the central government expects that increased consumption will compensate for the deficit over the next few months.

In addition, a special 40% tax, the maximum permitted under GST law, will apply to demerit and sin goods, including tobacco, gutka, pan masala, and online gaming, according to senior government sources, following Prime Minister Narendra Modi’s announcement of the GST overhaul in his Independence Day address.

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