A crucial meeting of the Group of Ministers (GoM) on GST rate rationalisation concluded on Thursday with states agreeing to the Centre's proposal to simplify India's indirect tax structure. The GoM, chaired by Bihar Deputy Chief Minister Samrat Choudhary, endorsed the plan to replace the current four-rate system of 5%, 12%, 18% and 28% with a two-rate structure.
Under the proposal, merit goods and services will continue to attract a 5% GST, while most standard items will be taxed at 18%. A higher 40% levy will be retained for a small list of sin goods such as tobacco and luxury products.
The GoM includes Uttar Pradesh Finance Minister Suresh Kumar Khanna, Rajasthan Health Minister Gajendra Singh, West Bengal Finance Minister Chandrima Bhattacharya, Karnataka Revenue Minister Krishna Byre Gowda and Kerala Finance Minister K N Balagopal.
Addressing the meeting, Union Finance Minister Nirmala Sitharaman said the rate rationalisation would provide "greater relief to the common man, farmers, the middle class and MSMEs, while ensuring a simplified, transparent and growth-oriented tax regime."
As per the plan, nearly 99% of items in the 12% bracket will move to the 5% slab, while around 90% of goods and services in the 28% slab will shift to 18%. The Centre believes the restructuring will ease compliance and make GST administration more efficient.
The GoM also reviewed a separate proposal to exempt GST on health and life insurance premiums for individuals, which is estimated to cause a revenue impact of about Rs 9,700 crore annually. While most states supported the move, they emphasised the importance of ensuring that insurance companies pass on the benefits directly to policyholders.
The GoM's recommendations will now be placed before the GST Council in its upcoming meeting for final approval. If cleared, this could mark one of the most significant overhauls of India's GST system since its rollout in 2017.
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