Prime Minister Narendra Modi on Friday announced that the government will unveil “next generation” reforms in the Goods and Services Tax (GST) by Diwali, promising significant tax relief for the common man and benefits for small and medium enterprises.
Addressing the nation from the ramparts of the Red Fort on the 79th Independence Day, Modi said the time had come to undertake further GST reforms as the indirect tax regime, rolled out on July 1, 2017, has completed eight years.
"We have discussed with states and we will usher in next generation GST reforms by Diwali, which will be a Diwali gift for citizens. Tax on items of common man will be reduced substantially. Our MSMEs will benefit hugely. Daily use items will become cheaper, which will also strengthen our economy," he said.
In a remark aimed at underlining the festive cheer, he added, "This Diwali, I am going to make it a double Diwali for you. Over the past eight years, we have undertaken a major reform in goods and services tax. We are bringing next-generation GST reforms that will reduce the tax burden across the country."
The announcement comes as a Group of Ministers (GoM) comprising state finance ministers is reviewing GST rate rationalisation, including possible mergers of existing tax slabs and cuts in rates on certain goods.
India currently levies GST at 5%, 12%, 18% and 28% on most goods and services, excluding gold and silver, with an additional levy on “demerit” items such as cigarettes and luxury cars.
Analysts say the changes could be significant.
Citi has estimated that about 20% of goods — including packaged food and beverages, apparel and hotel accommodation — fall under the 12% GST slab, accounting for 5-10% of consumption and 5-6% of GST revenue.
If most of these items are shifted to the 5% slab and some to the 18% slab, it could result in a revenue loss of around ₹500 billion, or 0.15% of GDP.
This, Citi said, could take the total policy stimulus for households in the current 2025-26 financial year to 0.6%-0.7% of GDP.