Big GST shakeup: Only 2 slabs, lower taxes, and zero hassle returns in new blueprint

Prime Minister Narendra Modi has promised Diwali tax relief, and it could come via a dramatic GST overhaul that slashes slabs to just two, cuts daily-use taxes, and automates refunds, in what the government calls a “three-pillar reset” of India’s tax regime.

Marking the 79th Independence Day, Modi hailed GST as a major reform that reshaped India’s economy since its 2017 launch. Now, the Centre is aiming for a cleaner, sharper, and more people-focused tax system. The Finance Ministry has submitted a proposal to the GST Council, with reforms built around structural fixes, rate rationalisation, and ease of living.

The plan is now being reviewed by a Group of Ministers (GoM), and implementation is targeted within the current financial year, just in time for Diwali.

Pillar 1: Structural Fixes
The Centre wants to end the mismatch between input and output tax rates — known as the inverted duty structure — to reduce tax credit pileups and promote domestic manufacturing. It also plans to streamline classification issues, which currently cause confusion, disputes, and compliance headaches. Long-term rate stability and policy predictability are key goals to help industries plan better and invest confidently.

Pillar 2: Rate Rationalisation — Two Slabs Only
At the core of the reform is a radical simplification: moving toward just two GST slabs — “standard” and “merit” — replacing the current multi-slab structure. Special rates will apply only to a select few items.

The proposal also includes tax cuts on essential and aspirational goods to increase affordability and drive consumption. This is expected to benefit wide sections of the population — from middle-class households to students and farmers.

The expiry of the GST compensation cess has created much-needed fiscal space, giving the Centre room to rationalise tax rates sustainably over the long term.

Pillar 3: Ease of Living
The third leg focuses on small businesses and digital ease. It proposes a seamless, tech-driven registration system, pre-filled GST returns to reduce errors and human intervention, and faster automated refunds for exporters and those dealing with inverted duty structures.

The Finance Ministry said the Centre is committed to working in close coordination with states under the spirit of cooperative federalism. The GST Council will deliberate on the GoM’s recommendations in its next session, with an emphasis on swift rollout.