Big Reforms Coming by Diwali in GST Act

Get ready for a Diwali bonanza! The Indian government is preparing to roll out the most significant reforms to the Goods and Services Tax (GST) regime since its launch in 2017. These “next-generation” changes are poised to simplify the tax structure, reduce rates on everyday goods, and energize the economy—and they're slated to take effect just in time for Diwali 2025.

Why the Change?

Eight years since GST replaced a complex web of central and state taxes, demands have grown for further simplification. Prime Minister Narendra Modi, in his Independence Day address, called the upcoming GST overhaul a “Diwali gift” for every Indian, especially the common man, MSMEs, and the middle class. The reforms have been fast-tracked, with nationwide consultations and GST Council deliberations under way.

Key Highlights of the GST Overhaul

1. Two Slab Structure

• The government proposes a radical shift from the current four slabs (5%, 12%, 18%, 28%) to just two main GST rates: 5% and 18%.

• Almost 99% of goods currently taxed at 12% will move to 5%, making essentials like packaged foods, dairy, apparel below ₹1,000, and footwear more affordable.

• About 90% of items in the existing 28% bracket—covering electronics, small cars, insurance—are expected to be shifted to the 18% slab.

• A special 40% rate will apply only to a handful of luxury and sin goods (e.g., tobacco products).

2. Lower Taxes on Daily Use Goods

• Essential products (ghee, butter, coconut water, juices, low-priced clothing and shoes) could see drastic tax reductions, translating to instant savings for families this festive season.

• Insurance premiums, cement, and home electronics are also in line for rate cuts.

3. Support for MSMEs and Manufacturers

• Simplified compliance procedures and lower rates will ease the tax burden on micro, small, and medium enterprises.

• Fixing “inverted duty structures” means less blocked working capital—making Indian manufacturing more competitive.

• The formalisation push promises to expand the tax base and support Atmanirbhar Bharat goals.

4. Boosting Consumption and Economic Growth

• The government aims for these reforms to spur demand, improve the ease of doing business, and deliver direct benefits to households.

• A streamlined tax framework with fewer disputes and more transparent rate structures supports sectoral growth, particularly for domestic consumption and exports.

What Happens Next?

• The proposals have been submitted to the GST Council for review, with key meetings scheduled in September and October.

• If approved, the new slabs will roll out by Diwali 2025 (October), coinciding with India’s peak festive shopping season.

• Expect announcement of final rates, a list of affected goods and services, and updated compliance guidelines for businesses in the coming weeks.

The Bottom Line

This GST 2.0 reform is not just a technical change—it’s a genuine Diwali gift aimed at making lives easier, energizing markets, and supporting long-term economic growth. Keep an eye out: your favorite everyday items may soon get much cheaper, and India’s tax system could turn simpler than ever.

Thanks and Regards

CA Mayank Khandelwal