GST 12% Slab May Go: What It Means for Indian Consumers and Businesses
The buzz ahead of the next GST Council meeting is loud — global analysts like Nomura are hinting at a merger of the 12% GST slab. If this happens, it could directly impact the prices of air conditioners, two-wheelers, insurance, and even agriculture equipment.
But what’s the real story? Let’s break it down.
What Is the 12% GST Slab?
India’s GST system currently has four main slabs: 5%, 12%, 18%, and 28%.
The 12% GST rate applies to:
- Household appliances like air coolers, geysers
- Two-wheelers (most models)
- Agricultural machinery like tractors and harvesters
- Health and term insurance premiums
- Mobile phones (until April 2020, now at 18%)
- Items like processed foods, toothpowder, spectacles, etc.
In the last few years, most items have migrated towards the 18% slab, shrinking the relevance of the 12% category.
Why Is the 12% GST Slab Under Review?
The idea of GST slab rationalisation has been discussed since the 45th GST Council Meeting (Sept 2021). The 12% slab is seen as:
- Redundant, with overlapping items in 5% and 18%
- Revenue-inefficient, due to classification disputes
- Distorting input tax credit (ITC) flows in sectors like manufacturing and services
Nomura’s report suggests this slab may now be eliminated, with items possibly shifting either down to 5% or up to 18% — depending on revenue and inflation impact.
Impact If 12% GST Slab Is Removed
Let’s look at two possible scenarios:
| Item | Current GST | If Shifted to 5% | If Shifted to 18% |
|---|---|---|---|
| Two-wheelers (100–125cc) | 12% | Price ↓ ~6% | Price ↑ ~5% |
| ACs & Coolers | 12% | Unlikely | Price ↑ ~6% |
| Health Insurance | 12% | Potential drop | Price ↑ for buyers |
| Tractors & Implements | 12% | Likely ↓ | Industry to absorb |
Expert View: “Shifting agri equipment and health insurance to 5% may provide relief to farmers and the middle class, while luxury items may move up,” says CA Mukesh Rawal, Indore.
Legal Angle: How the Council Can Change GST Slabs
The GST Council, under Article 279A of the Constitution, has powers to recommend tax rates, but changes are implemented via:
- Notifications by CBIC under Section 9(1) of CGST Act, 2017
- Updated Rate Notifications under Notification No. 1/2017–CT (Rate) and its amendments
For example, any slab change for two-wheelers or ACs will require an amendment to this master notification by CBIC.
Keep an eye out for the minutes and press release of the upcoming Council meeting on gstcouncil.gov.in.
What Should Businesses Do?
If your products fall under the 12% GST slab, consider:
- Stock audits before the rate change
- Pricing strategy for pre- and post-GST revision
- ITC management — input credit on 18% goods sold at 12% may now align
- Update invoicing software to avoid non-compliance
Potential Gains and Risks
Gains:
- Simpler compliance with fewer rate slabs
- Correction of inverted duty structures
- Possible price drop in essential goods (insurance, agri equipment)
Risks:
- Inflation in consumer durables
- Working capital pressure on MSMEs
- Transitional confusion, especially in trade-led sectors
GST Slab Rationalisation: What’s Next?
Slab restructuring is long overdue. The 15th Finance Commission report and RBI studies have also suggested a 3-rate system: 5%, 15%, and 28%. Eliminating the 12% slab is the first step in that direction.
The final call rests with the Council — expected soon. Stay tuned.
FAQs
Q1. Will two-wheelers become costlier or cheaper?
If moved to 18%, expect a price rise. If to 5%, a price cut. Depends on Council decision.
Q2. Will health insurance premiums increase?
If insurance shifts to 18%, premiums will increase for most policyholders.
Q3. Are all 12% items moving to one slab?
Not necessarily. Essential goods may go to 5%, others to 18%, based on economic impact.
Summary
GST 12% slab may go soon. Big-ticket items like two-wheelers, ACs, insurance, and tractors could see major price changes. Here’s what to expect.