Modi’s I-Day Bonanza: Govt proposes to lower tax on daily-use goods from 12% to 5%

The next-generation GST overhaul will focus on tax cuts, a simplified two-slab system, and measures to boost ease of living. The reforms aim to make essential goods cheaper, reduce disputes, and strengthen India’s economy under the vision of ‘Atmanirbhar Bharat’.

Prime Minister Narendra Modi, while addressing the nation from the Red Fort on the occasion of the 79th Independence Day on Friday, promised next-generation GST (Goods and Services Tax) reforms ahead of Diwali, calling it a major gift to the people during the festive season.

The government has proposed to change the slabs of the Goods and Services Tax (GST) to only 5% and 18% for most of the products, except for a special 40% rate on luxury and sin goods like tobacco, reported news agency PTI citing sources. In the proposed new structure, which could be in place after Diwali this year, most of the daily-use products will be taxed at 5 per cent, the sources told PTI.

They added that about 90% of taxable items in 28% bracket will be shifted to 18% tax slab, whereas 99% of items in the current 12% GST tax slab will be moved to 5% bracket in the revamped GST regime. This means that the 12% and 28% tax brackets will most likely be done away with in the revamped regime.

 

What PM Modi Said

In his independence day speech, PM Modi on Friday said the Centre has discussed with states the proposal and that the country will “usher in next generation GST reforms by Diwali, which will be a Diwali gift for citizens.” He said that tax on items of common man will be reduced substantially and MSMEs will benefit hugely.

“Now, the time has come for a review…Daily use items will become cheaper, which will also strengthen our economy,” Modi said. Introduced in 2017, the GST reform was touted as a historic milestone to strengthen the country’s economy. Now, the government is preparing to roll out the next generation of GST reforms to accelerate the vision of an ‘Atmanirbhar Bharat’.

The focus of these reforms will be on three major pillars – structural reforms, rate rationalization and ease of living, the Finance Ministry said in a statement.

Key pillars of the Centre’s proposed reforms

Pillar 1: Structural reforms Inverted duty structure correction:

The correction of inverted duty structures to align input and output tax rates so that there is a reduction in the accumulation of input tax credit. This would support domestic value addition.

Resolving classification issues: Resolve classification issues to streamline rate structures, minimise disputes, simplify compliance processes, and ensure greater equity and consistency across sectors. Stability and predictability: Provide long-term clarity on rates and policy direction to build industry confidence and support better business planning.

Pillar 2: Rate rationalisation Reduction of taxes on common-man items and aspirational goods:

This would enhance affordability, boost consumption, and make essential and aspirational goods more accessible to a wider population.

Reduction of slabs: Essentially move towards simple tax with 2 slabs – standard and merit. Special rates only for select few items.

Compensation Cess: The end of compensation cess has created fiscal space, providing greater flexibility to rationalise and align tax rates within the GST framework for long-term sustainability.

Pillar 3: Ease of living Registration:

seamless, technology-driven, and time-bound, especially for small businesses and startups.

Return: Implement pre-filled returns, thus reducing manual intervention and eliminating mismatches.

Refund: faster and automated processing of refunds for exporters and those with inverted duty structure.

Centre sends proposals to GoM

The central government has sent these proposals to the Group of Ministers (GoM) of the GST Council. Efforts will be made to implement these reforms soon by building a consensus with the states, so that the public can get its benefits in this financial year itself.

The government aims to transform GST into a simple, stable and transparent tax system that will promote inclusive growth, strengthen the formal economy and enhance ‘Ease of Doing Business’.

Source::Financial Express,  dated 15/08/2025.