Next-gen GST reforms by Diwali, will reduce tax on every day use items: PM Modi

Prime Minister Narendra Modi, while delivering his Independence Day speech on Friday, announced that next-generation GST (Goods and Services Tax) reforms will be implemented by Diwali, aiming to reduce taxes on everyday use items.

"I am going to give a great gift on Diwali. In the last 8 years, we did a big reform in GST, tax was simplified. Now it is the demand of the time to make a review, we did, also talked to states, we are bringing next generation GST reform."

Taxes paid by citizens will be drastically reduced, benefiting small industries and MSMEs, while daily-use products will become cheaper, he said from the ramparts of Red Fort.

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Modi's announcement comes as India moves to simplify its GST structure, with a group of ministers preparing a report that will consider merging tax slabs and lowering rates on some products.

The government has previously said that it wants to change GST rates and reduce the number of brackets, referring to tax rates for different categories, under a tax regime introduced in 2017.

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The country currently levies GST at 5%, 12%, 18% and 28% on most goods and services, excluding gold and silver, and applies an additional levy on so-called demerit items such as cigarettes and high-end cars.

Citi estimated that about 20% of items - including packaged food and beverages, apparel and hotel accommodation - fall under the 12% GST slab, accounting for 5-10% of consumption and 5-6% of GST revenue.

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If most of these are moved to the 5% slab and some to the 18% slab, it could lead to a revenue loss of around 500 billion rupees, or 0.15% of GDP, potentially taking the total policy stimulus for households in the current 2025-26 financial year to 0.6%-0.7% of GDP, the brokerage said.