Finance Minister Nirmala Sitharaman has shed light on the rationale behind India's landmark GST reforms, clarifying how classification disputes led to litigation, revenue losses and confusion for both businesses and states.
In an interview, FM Sitharaman revisited the much-debated "popcorn example," which she said exemplifies the classification problems that plagued the earlier GST structure. "Why am I saying hesitation? Because I was pilloried on it. But that tells you the problem of classification. In the case of popcorn, it led to litigation, courts coming up with different interpretations and states losing revenue. Because of different classification, people tried to show sugary, chocolate-coated popcorn as salted popcorn, since the latter had lower tax," she said.
A Simpler GST Structure
The GST Council recently approved a sweeping reform, introducing a two-slab tax structure and scrapping the 12% and 28% brackets. Essentials have moved into lower slabs, while only select products face higher levies.
Sitharaman said the exercise was not just about rate rationalization, but about "regrouping goods and services from the perspective of daily-use items consumed by citizens, especially middle-class and poor families." She emphasized that farmers and households could not be burdened by classification loopholes that businesses exploited in the past.
"GST in 2017 was an improvement over the pre-GST era, when each state had its own definitions and rates. But it still required simplification. With this exercise, we have regrouped and cleansed the system of anomalies, doubts, duplications and interpretative issues," she noted.
Covering 99% of Goods and Services
According to the Finance Minister, nearly 99% of all goods and services under GST now fall into three simplified categories - 0%, 5%, or 18%. Only 1% of items, classified as "sin goods," are taxed at higher rates.
"Daily-use items or those necessary for India's transition from an emerging economy to a Viksit Bharat cannot be overburdened by tax arbitrage. This reform ensures fairness and clarity," Sitharaman said.
The new structure will come into effect from September 22, 2025, and is expected to reduce litigation, improve compliance, and enhance revenue predictability for states.
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