New Delhi
The 56th meeting of the Goods and Services Tax (GST) Council, chaired by Union Finance Minister Nirmala Sitharaman on September 3–4, 2025, marked one of the most significant tax reform discussions since the GST regime was introduced in 2017. The meeting focused heavily on rationalising tax rates, easing compliance, and addressing concerns raised by states over possible revenue losses.
Two-slab structure under discussion
At the centre of the deliberations was a proposal to replace the existing four-slab system—5%, 12%, 18% and 28%—with a simplified structure. The plan under review is to retain two broad rates: 5% for essential items and 18% for most other goods and services. In addition, a 40% “sin tax” would be levied on luxury products and items harmful to health, such as tobacco and high-end cars.
Officials described the move as a long-awaited step to streamline India’s indirect tax system. The simplification is aimed at reducing disputes, improving compliance, and giving relief to both consumers and businesses. However, it is also expected to create fresh challenges for states that depend heavily on GST revenue.
Relief for everyday goods and services
The Council’s discussions included a potential tax reduction for a wide range of products. Everyday household goods such as toothpaste, shampoo, talcum powder and preserved food items, which are currently taxed at 18%, may be brought under the 5% bracket. This change is expected to reduce the cost of living for ordinary households.
Consumer durables, including televisions, air conditioners and some large appliances, may see tax rates drop from 28% to 18%. Similarly, hybrid cars are likely to attract a lower tax burden, signalling the government’s support for environmentally friendly mobility solutions.
Life and health insurance premiums and certain life-saving drugs were also discussed for possible exemption or reduction, a step that could make healthcare more affordable for citizens.
Compliance and refund reforms
Apart from tax cuts, the Council is considering measures to ease compliance. Faster refund processing for sectors such as pharmaceuticals, textiles and fertilisers has been proposed, along with steps to digitise registration and return filing. Officials hinted at exploring the idea of near-automatic return filing, which could speed up the process from months to a matter of days.
Industry representatives have long complained about delays in refunds and complex filing requirements, which hurt smaller businesses in particular. The proposed reforms are expected to support micro, small and medium enterprises (MSMEs) and improve ease of doing business.
Concerns from states over revenue losses
Despite the consumer-friendly proposals, several states have expressed strong concerns about revenue implications. Opposition-ruled states, including Kerala, Karnataka and West Bengal, have warned that rationalisation could create revenue gaps amounting to ₹1.5–2 lakh crore annually.
For example, Kerala alone reported a shortfall of nearly ₹21,955 crore last year. Its finance minister has indicated that the state cannot sustain such losses without additional support from the Centre. Similar worries have been raised by other states that rely heavily on GST collections for their budgets.
Some leaders argued that while rationalisation will benefit consumers and improve demand, a mechanism to compensate states must be put in place to prevent fiscal stress. Others, however, maintained that easing the burden on households and businesses was more critical than protecting short-term revenues.
Conclusion
The 56th GST Council meeting underlined the government’s intent to simplify India’s tax system while balancing the twin objectives of boosting consumption and protecting state revenues. Though final decisions are yet to be announced, the discussions signal a major shift in tax policy. If implemented, the changes could lower the tax burden on households, stimulate festive demand, and make compliance easier, even as the debate over revenue-sharing between the Centre and states intensifies.