GST 12% Slab May Be Scrapped: Major Rate Reshuffle Ahead
The GST Council is reportedly considering a major overhaul—scrapping the 12% GST slab entirely. If approved, this would simplify India’s indirect tax structure and impact prices across sectors like insurance, FMCG, and transport. Here’s a breakdown of what it means for you.
Why Is the GST Council Reviewing the 12% Slab?
India currently has a four-rate GST structure:
- 5% for essential goods/services
- 12% and 18% as standard rates
- 28% for luxury/sin goods
The 12% and 18% slabs often lead to confusion and disputes on classification. To streamline the system and reduce litigation, the Council is considering merging the 12% and 18% slabs, or possibly eliminating the 12% category altogether.
This idea was earlier mooted by the 15th Finance Commission and is now gaining traction amid a rise in GST revenues.
What Will Change If the 12% Slab Goes?
Here’s a simple comparison of possible outcomes:
| Item/Service | Current GST Rate | Expected Change | Impact |
|---|---|---|---|
| Health insurance | 18% | May reduce to 12% or 5% | Lower premiums |
| Packaged food | 12% | May shift to 5% or 18% | Mixed—some cheaper, some costlier |
| Transportation (Rail/Air economy) | 5%/12% | Likely simplified to one slab | Uniform pricing |
| Electrical appliances | 12% | May go to 18% | Likely to get costlier |
Expert Tip: Businesses in sectors currently taxed at 12% should prepare for rate migration and potential IT system updates. Early compliance planning is key.
Which Sectors May Gain from the Change?
- Insurance & Financial Services
- The Council is considering reducing GST on life and health insurance.
- This move aligns with broader policy to expand insurance coverage.
- Packaged Food, Textiles, and FMCG
- Daily-use goods in the 12% bracket may be moved to 5%, benefiting consumers.
- Logistics and Transport
- Smoother classification and pricing for goods transport agencies and airline economy class.
Legal and Revenue Angle
- GST Revenue Collection has consistently crossed ₹1.7 lakh crore/month in 2025. This gives the Council fiscal room to rejig rates without major revenue loss.
- CBIC and GST Policy Wing will issue detailed clarifications once the new slabs are finalized.
- Any changes will come via Notification under Section 9(1) of the CGST Act, 2017.
- Classification disputes under the current 12%/18% split have led to multiple AAR and High Court cases. A two-rate system could reduce litigation.
When Will the New GST Slabs Be Implemented?
- The next GST Council Meeting is likely to consider the 12% slab issue.
- If approved, the changes could be notified in late 2025, with a rollout from 1st January 2026.
- Businesses will get a transition window for system and pricing adjustments.
FAQs
Q1. Will all 12% items move to 18%?
No. Some items may shift down to 5%, others up to 18%, based on essentiality and revenue neutrality.
Q2. How will this impact GST compliance for SMEs?
Fewer slabs = simpler classification = less paperwork and lower chances of notices.
Q3. Will insurance become cheaper?
Yes, if GST on premiums drops from 18% to 12% or 5%, policyholders will save more.
Summary
GST 12% slab may soon be scrapped, making room for a simpler two-rate system. Insurance, FMCG, and transport sectors may benefit. Know the possible impacts and prepare for changes.
Final Thoughts
This potential move to eliminate the 12% GST slab reflects a long-term goal of simplification and fairness. It could ease business compliance, reduce litigation, and lower consumer costs—especially in sectors like insurance and FMCG.
Need help adjusting your GST compliance or IT systems for the new slab changes?
Talk to Efiletax experts today and stay ahead of the curve.
Sources:
- gstcouncil.gov.in
- cbic.gov.in
- Finance Commission Reports
- Press reports quoting senior officials (Economic Times, July 2025)
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