The GST Council has approved a two-tier rate structure of 5% and 18%, effective September 22. While states backed the move, West Bengal flagged a ₹47,700 crore revenue loss. Tax on demerit goods remains undecided after a 10.5-hour marathon meeting.
India’s indirect tax system is about to undergo a major overhaul. Starting September 22, the Goods and Services Tax (GST) will be simplified to just two key slabs – 5% and 18% – after the 56th GST Council meeting reached a consensus on rationalising rates. The decision, which took more than 10 hours of deliberation between the Centre and states, is being projected as a “Diwali gift” for consumers and businesses, but state governments and experts have also flagged concerns about revenue losses.
States Back Centre’s Move
Bihar Deputy Chief Minister Samrat Choudhary said the proposal was backed unanimously.
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“The decision was consensus-driven, with all states on board for the rate rationalisation,” he said.
Punjab Finance Minister Harpal Singh Cheema explained that the reform means fewer slabs.
“Now there are three slabs – 5%, 18% and a special slab. One slab has been removed. We said the compensation cess should be increased, but the Centre did not agree,” he revealed.
Assam Chief Minister Himanta Biswa Sarma also voiced strong support for the change.
“We are supporting the move of the Prime Minister. Assam’s view is to lower GST to 5% and 18%. We will completely support the decision of the Government of India,” he said.
Revenue Loss a Big Worry
Not all leaders were equally optimistic. West Bengal Finance Minister Chandrima Bhattacharya warned of a sharp dip in state income.
“The total revenue loss due to GST rate rationalisation will be around Rs 47,700 crore,” she said.
Uttar Pradesh Finance Minister Suresh Khanna also noted that the question of demerit goods – items currently taxed up to 40% – remains unresolved.
“Any levy beyond the existing 40% will be decided later,” he said.
Experts Say Consumers Benefit, But Fiscal Risks Remain
Weighing in on the decision, JNU Economics Professor Praveen Jha called it both a welcome relief and a potential fiscal headache.
“The Prime Minister called it a Diwali gift. If you reduce the rates, the consumers will certainly benefit, and producers will also get some relief. Right now, it's a kind of slab where you have from 5% to 28%. It has been proposed that it will be reduced to 2%. Customers and businesses are going to benefit,” he explained.
But he cautioned about the impact on government finances.
“So the question is, if revenues don't rise and if you have to maintain the same expenditure level, this obviously implies an increase in deficit... In the last few years or so, GST has been contributing a substantial part of the revenue kitty, more than 50% or so. In such a context, this becomes an obvious issue. So how do you offset that?... You can expect that there would be a reduction in revenues because of these rate cuts and reduction of slabs.”
What It Means for You
For the common consumer, this GST shake-up could mean lower prices on everyday goods and services. For small and medium businesses, compliance is expected to become simpler with fewer tax brackets.
But for governments, especially states, the challenge will be managing reduced revenues while continuing to fund welfare schemes and infrastructure.
The real test begins September 22, when the new slabs kick in — and households, businesses, and policymakers will quickly see whether this is truly the “Diwali gift” it is being sold as.
