India Set to Slash GST Rates
NEW DELHI — India’s government will lower and simplify Goods and Services Tax (GST) rates in a major overhaul of the nation’s tax system. Indian Finance Minister Nirmala Sitharaman announced the move on March 25, 2025, in Mumbai, seeking to lighten the load on companies and consumers. The move followed years of fine-tuning the GST, implemented in 2017 to harmonize India’s patchwork of taxes.
A Push for Simpler Taxes
The current five-slab system — 0%, 5%, 12%, 18% and 28% — are among the main targets of the GST revamp. Sitharaman said the government is close to finalizing rate cuts and bringing down the number of slabs. “We are very close to taking crucial decisions on rate cuts,” she told attendees at The Economic Times Awards. This comes after the average GST rate was reduced from(15.8% in 2017 to(11.4% today, indicating a gradual approach to the systematic reduction of tax costs. The experts say the aim is to create a fairer tax system and spur economic growth.
On its inception, GST, did away with a convoluted network of state and central taxes. Its goal was to prevent tax-on-tax problems and create a single national market. But many derided the multi-slab arrangement as overly complicated. U.S. businesses, especially smaller ones, struggled to comply. Consumers also felt the squeeze from high rates on daily items. Under the new scheme, nearly all items would shift to rates below 18% and only luxury products would be taxed at 28%.
Why Now? Background and Timing
India has enjoyed rapid economic growth, but faces inflation and disparate burdens of taxation. Since 2017, the country’s state and central leaders comprising the GST Council have changed rates more than 300 times. The latest round targeted items including cancer drugs (12% to 5%) and savoury snacks (18% to 12%). These steps indicate a shift toward relief. Posts on X and news reports indicate strong public support for deeper cuts, particularly as costs of living have risen.
The timing coincides with India’s efforts to woo investment and ease the course of doing business. A slimmer GST may attract greater commercial activity. It is also responsive to calls from traders and consumer sectors. For a long time they’ve sought fewer slabs — some have proposed a single rate. In December 2024, the 55th GST Council meeting paved the way by aligning rates on items such as millet flour and molasses. Now, the attention turns to larger-scale changes.
What’s Next for GST?
Details remain under wraps, but Sitharaman also indicated of a decision likely soon. The GST Council is expected to meet in the last week of March or in April 2025 to vote on the plan. Potential cuts could be on household goods such as refrigerators and building materials including cement, now at 28%. That could spark demand, especially with India’s festive season approaching. But states are concerned about losing revenue, which could stymie the process.
Analysts view this as a tightrope to walk. Slashing taxes too swiftly could put pressure on government coffers, while having taxpayers wait for cuts too long could be an irritation. The revamp also aims to remove anomalies such as taxing jaggery at 0% when sold loose but at 5% when sold packed. A streamlined system can increase compliance, and the number of registered businesses has jumped from 65 lakh in 2017 to 1.2 crore now.
Looking Ahead
India’s GST overhaul could remake its economy. Lower rates may help tame inflation, and give consumer spending a lift. Businesses could reduce costs and paperwork, spurring growth. But execution is critical — too many roadblocks or disagreements could freeze momentum. The next meeting of the Council will be critical. If approved that would kick in by mid-2025, marking a fresh chapter India’s tax story.
In the meantime, all eyes are on New Delhi. Will this daring measure produce relief, and clarity? The answer is coming soon.