GST rate overhaul: Will the 12% tax slab be removed?
The Central Government is initiating a major GST rate overhaul, with Amit Shah stepping in to build consensus between states and ministries. The key focus? Scrapping the 12% tax slab — a move that could simplify India’s four-rate GST system but also shake up pricing across sectors.
Here’s a breakdown of what’s happening, what it could mean for your business, and how to stay tax-compliant in this evolving landscape.
Why the GST rate overhaul now?
The GST Council currently follows a four-tier rate system: 5%, 12%, 18%, and 28%. The 12% slab covers a broad range of goods like electrical appliances, mobile phone parts, business services, textiles, etc.
What’s prompting the change?
- Revenue-neutrality pressure: States have been seeking compensation as the 5-year GST compensation regime ended in June 2022.
- Inverted duty structure issues: The 12% slab causes complications in sectors like textiles and pharma.
- Simplification push: The Finance Ministry wants to collapse slabs to make GST leaner and more predictable.
Amit Shah’s involvement signals political will to fast-track consensus with states.Which goods and services fall under the 12% GST slab?
Here’s a glimpse of major categories taxed at 12% as of now:
Which goods and services fall under the 12% GST slab?
Here’s a glimpse of major categories taxed at 12% as of now:
If this slab is removed, expect reclassification into 5% or 18%, depending on policy direction.
What happens if 12% GST slab is removed?
Scenario 1: Merged with 18% slab
- Goods/services will become costlier
- Revenue gains possible for Centre and states
- Compliance may become easier for manufacturers using 18% inputs
Scenario 2: Shifted to 5%
- Consumer prices may drop
- Pressure on government revenue
- Inverted duty complications could increase in some sectors
Likely Outcome: A 2-slab system (8%–9% and 18%) was once proposed by the Fitment Committee. This may resurface.
Legal & Policy Context
- The 15th Finance Commission suggested rationalisation of rates to improve buoyancy.
- The GST Council had earlier set up a Group of Ministers (GoM) under Karnataka CM to study rate rationalisation — their report submitted in 2023 is under review.
- CBIC’s data shows average monthly GST collections now exceed ₹1.70 lakh crore, giving some cushion for rate tweaks.
For official records: GST Council Website and CBIC Notifications
Expert Tip: Rework pricing models before rate change
If you supply goods/services currently under the 12% slab, start scenario modelling now. Speak to your CA about:
- Advance contracts and pricing clauses
- Transitional ITC adjustments
- Margin recalibration
- Impact on working capital
Especially relevant for textile traders, MSME manufacturers, real estate suppliers, and aggregators in logistics or mobility sectors.
How can taxpayers prepare for the GST rate overhaul?
Here’s a 5-step action plan:
- Review product/service HSNs that currently fall under 12%
- Update ERP/accounting software for quick reclassification
- Track GST Council updates – next meeting expected soon
- Engage tax advisors to prep transitional provisions
- Follow Efiletax for simplified updates and rate tables
Possible winners and losers
| Category | Likely Outcome |
|---|---|
| Luxury Appliances | Higher price (if moved to 18%) |
| MSME Textile Units | Benefit if moved to 5% |
| State Revenues | Rise if slabs are merged upward |
| Logistics Services | Better ITC alignment |
FAQs
Q1. Will the 12% GST slab be removed completely?
Not confirmed yet. But major deliberations are underway, and consensus is being built.
Q2. What if my service was at 12% earlier?
You may need to charge 18% or 5%, depending on final notification. This may affect contracts, invoices, and compliance documents.
Q3. When will the change be effective?
Expected in 2025–26. The Centre is likely to give a 1–2 month transition window after formal notification.
Summary for Snippet
GST rate overhaul may eliminate the 12% slab. Amit Shah leads consensus talks. Likely changes could impact pricing, compliance, and tax planning for key sectors.
Final Word
India’s GST reform journey continues. Removing the 12% slab is part of a broader push toward simplicity and revenue neutrality. Whether you’re a small trader, service provider, or manufacturer — changes are coming.
Stay ahead with Efiletax. Our experts decode policy updates, offer real-time compliance help, and ensure you’re ready for every GST change.