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India announces major GST reform

Author: Published on: Published in: News and Insights

India’s Prime Minster Narendra Modi has unveiled a sweeping reform of the country’s Goods and Services Tax (GST). The biggest overhaul since its introduction in 2017.

The changes aim to simplify the rate structure, reduce compliance headaches, and give a much-needed boost to businesses and consumers alike.

The new rate structure

At the heart of the reform is the consolidation of the current four GST rates (5%, 12%, 18%, and 28%) into just two standard rates:

  • 18% Standard rate – applied to most goods and services
  • 5% Reduced rate – applied to essentials and select categories

In addition, a 40% “sin tax” will be introduced on limited items such as tobacco, replacing the current 28% top rate.

What changes for consumers?

Goods currently taxed at 12% (e.g. processed foods, garments, footwear, construction materials, and hotels) will move down to 5%.

This shift is expected to lower the overall GST burden, which in turn should help restrain inflation.

The reforms are expected to be finalised by October 2025.

Structural and compliance simplifications

The GST overhaul isn’t just about rates. Modi’s reform package also addresses long-standing issues in India’s tax system.

  1. Structural changes
  • Correction of inverted duty structures – ensuring input taxes don’t exceed output taxes, which currently cause refund delays and distortions.
  • Simpler classification of goods and services – reducing disputes over tax rates.
  • Policy clarity – giving businesses long-term certainty for planning and investment.
  1. Ease of living and compliance
  • Simplified registration procedures for businesses.
  • Pre-filled GST returns, cutting down on administrative work.
  • Faster refunds for exporters, SMEs, and businesses overall.

Overall, the goal is to make compliance simpler, faster, and more predictable, improving India’s global “ease of doing business” ranking.

What’s next?

The proposals have been submitted to the Group of Ministers (GoM) under the GST Council, which will make the final decision. The Council is expected to meet in September–October 2025, with a strong push to implement reforms before the Diwali festive season.

 

This reform marks a major milestone in India’s GST journey. By simplifying rates and reducing compliance hurdles. If approved by the Council, India could move into 2026 with a leaner, more efficient GST system, balancing revenue needs with growth and inflation control.

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