Centre May Scrap 12% GST Slab, Provide Relief to Middle and Lower-Income Households

In a move poised to ease inflationary pressure and boost consumption, the Central Government is considering a major restructuring of the Goods and Services Tax (GST) rates. According to official sources, the proposal under review includes scrapping the 12% GST slab altogether and reclassifying a wide range of goods and services into the lower 5% bracket. This measure, aimed at offering relief to middle and lower-income households, follows recent income tax concessions and aligns with the government’s broader plan for a more rational tax structure.

Key Items Likely to Benefit

Items predominantly used by common households, especially the middle class and economically weaker sections, are on the radar for rate reduction. The proposed reclassification includes:

  • Household items: Toothpaste, tooth powder, pressure cookers, kitchen utensils, sewing machines, electric irons, small-capacity washing machines, geysers
  • Personal care and hygiene: Hair oil, basic soaps, umbrellas
  • Garments and footwear: Readymade garments priced above ₹1,000, footwear between ₹500 and ₹1,000
  • Public utility and health: Vaccines, diagnostic kits (HIV, Hepatitis, TB), bicycles, carriages for disabled persons
  • Education-related items: Exercise books, geometry boxes, colouring books, maps and globes
  • Construction and infrastructure: Basic ceramic tiles, prefabricated buildings, glazed tiles, ready-mix concrete
  • Agricultural inputs: Mechanical threshers, other basic agri-tools
  • Energy-saving: Solar water heaters
  • Packaged consumables: Condensed milk, frozen vegetables (some variants)

If implemented, this change will make these goods significantly more affordable, thereby easing the cost of living for vast sections of the population.

Economic and Fiscal Impact

Though the move is expected to cost the exchequer ₹40,000 to ₹50,000 crore initially, the government believes it will trigger a rise in consumption, leading to higher tax compliance and long-term revenue gains. Finance Minister Nirmala Sitharaman has hinted at such structural GST changes in recent interviews, citing the need to simplify the tax system and deliver tangible benefits to the middle class.

Challenges and GST Council Dynamics

However, a hurdle remains. GST rate changes must be approved by the GST Council, a federal body where both Centre and states hold voting rights. Currently, some states including Punjab, Kerala, Madhya Pradesh, and West Bengal are reportedly opposing the proposal. Since GST’s inception, the Council has mostly functioned through consensus—only once has a decision been subjected to a vote.

The issue is likely to be a key agenda item at the upcoming 56th GST Council meeting. As per Council rules, a minimum 15-day notice is required before convening the meeting.

Background of the 12% Slab

The 12% GST slab typically covers goods that are of frequent use among middle and lower-income households, but which are not categorised as essential (which are usually taxed at 0% or 5%). The government’s proposal to collapse this slab and shift many items to the 5% category would represent a major simplification of the GST rate structure.

Inference:

If approved, the move could mark a landmark shift in India’s indirect tax regime, making it more consumption-friendly and equitable. While it poses a fiscal challenge in the short term, the long-term goal of spurring demand and compliance could pave the way for a more sustainable revenue system.