GST Council Opens 56th Meeting to Push Next-Generation Tax Reforms
The GST Council on Monday opened its 56th two-day meeting in New Delhi, just two weeks after Prime Minister Narendra Modi announced next-generation GST reforms during his Independence Day address. Finance Minister Nirmala Sitharaman is chairing the meeting, which brings together representatives from 31 states and Union Territories.
During the meeting, the Council will examine far-reaching proposals to cut GST rates on essential goods and expand exemptions for welfare-related services, including individual health and life insurance. The government aims to simplify the tax structure, streamline compliance, and eliminate long-standing classification disputes that have plagued the GST system since its launch.
The proposed reforms focus on digitising and speeding up GST registration, return filing, and refund processes. The Centre also plans to fix the inverted duty structure, which currently forces businesses to pay higher taxes on inputs than on finished goods. By resolving disputes such as roti versus parotta and popcorn classification, the government hopes to bring certainty and long-term stability to the eight-year-old GST regime.
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GST Rate Rationalisation to Cut Costs Across Sectors
The GST Council is actively considering a proposal to replace the current four tax slabs—5%, 12%, 18%, and 28%—with a simpler two-rate structure. Under the plan, essential goods will attract a 5% merit rate, most goods and services will fall under an 18% standard rate, and tobacco, pan masala, and other sin goods will face a 40% demerit rate.
If approved, the changes will shift nearly 99% of goods currently taxed at 12% to the 5% slab, while around 90% of items taxed at 28% will move to 18%. Consumers may soon pay less for air conditioners and televisions, as GST on these white goods could fall from 28% to 18%. The Council may also lower GST on milk, paneer, fruit juices, and medical oxygen from 12% to 5%.
The reforms will extend relief to key industries as well. The Council may reduce GST on fertiliser inputs, renewable energy equipment, and textile products, giving a boost to agriculture, clean energy, and manufacturing. In the services sector, the Council is weighing a proposal to fully exempt individual health and life insurance policies from GST and levy just 5% tax on hotel rooms priced below ₹7,500 per night.
States Flag Revenue Risks, Seek Assurances
Several states have raised red flags over the revenue impact of large-scale GST rationalisation. Estimates suggest that the proposed changes could lead to an annual revenue loss of ₹70,000–80,000 crore, while exemptions for health and insurance alone could reduce collections by nearly ₹10,000 crore.
State governments have warned that GST revenues could fall by 15–20%, pushing total losses close to ₹2 lakh crore. To offset this risk, states have demanded a guaranteed compensation mechanism, additional levies on luxury and sin goods, or permission to raise funds through borrowings backed by future GST receipts.
The Centre has countered these concerns by stressing that improved compliance, higher consumption, and fewer legal disputes will strengthen GST collections over time. Despite lingering reservations, several states have endorsed the proposal, calling it a pro-people reform that will lower living costs, reduce business friction, and support economic growth.
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