GST Rate Rationalisation: What Taxpayers Need to Know
The government is stepping up its push for GST rate rationalisation, with the GST Council expected to take up key proposals in its next meeting. The aim? Simplify the current slab system and reduce classification disputes. This blog decodes what GST rate rationalisation means for Indian taxpayers and how to prepare for the changes.
Why Is GST Rate Rationalisation on the Agenda Now?
The current GST regime has five main tax slabs:
- 0% (Exempt)
- 5%
- 12%
- 18%
- 28%
This has led to frequent disputes, classification issues, and inverted duty structures (IDS). A rationalised structure would ideally reduce the number of slabs and correct IDS anomalies.
Government sources and past CBIC statements indicate that:
- The 12% and 18% slabs may be merged
- Some goods/services under 5% may move to 7% or 8%
- IDS-affected sectors (like textiles and footwear) could see slab changes
What Is Inverted Duty Structure (IDS) and Why It Matters
IDS occurs when the input tax is higher than the output tax, causing accumulation of ITC and refund complexities.
Common IDS sectors:
- Textiles
- Footwear
- Fertilizers
- Mobile phones
Impact of IDS:
- Working capital blockages
- Compliance burdens
- Frequent refund claims
Rationalisation could help by:
- Reducing refund dependency
- Easing compliance
- Making supply chains smoother
What Taxpayers Should Expect from the GST Council
The 53rd GST Council Meeting held in June 2024 took a cautious view. However, the fitment committee is now actively reviewing slab adjustments with revenue-neutrality in mind.
What may change:
- Merge 12% and 18% into a unified 15–16% rate
- Shift items in 5% slab to a new 7–8% bracket
- Reduce exemptions to widen the tax base
- Remove anomalies in IDS-affected sectors
Legal and Policy Background
- 43rd GST Council Meeting (2021) first formally mooted slab merging
- Parliament Standing Committee on Finance (2022–23) also pushed for simplification
- FM Nirmala Sitharaman has reiterated that rationalisation must be revenue-neutral
- CBIC, in its annual policy vision, prioritised IDS correction and classification clarity
📄 You can refer to CBIC’s official site for circulars and Council meeting updates: cbic.gov.in
Expert Tip: Prepare for Advance Ruling Changes
Tax expert firms suggest businesses:
- Review product/service classification under potential new slabs
- Revisit pricing contracts, especially for long-term service agreements
- Keep documentation ready for advance rulings or clarifications under revised slabs
Efiletax Insight: If rate changes are notified, you may need to adjust your invoice format, POS declarations, and ERP/GST software. Get your CA or tax consultant involved early.
Comparison: Current vs Expected GST Slabs
| Tax Rate | Current Status | Possible Change | Impact Area |
|---|---|---|---|
| 5% | Essentials, food | 7–8% | FMCG, restaurants |
| 12% | Mid-range goods | Merged with 18% | Appliances, garments |
| 18% | Services, general | Merged with 12% | Hotels, software, finance |
| 28% | Sin/luxury goods | No change expected | Automobiles, tobacco |
FAQs
Q1. Will GST become costlier after rate rationalisation?
Not necessarily. Rationalisation aims at simplicity, not burden. But some goods may move up from 5% to 7–8%.
Q2. Will there be a flat GST rate for all items?
Unlikely. Essential goods will remain in lower slabs. But slabs like 12% and 18% may merge.
Q3. What if I sell goods across multiple slabs?
You must classify each correctly. If slabs are revised, update your HSN/SAC codes accordingly.
Final Thoughts
GST rate rationalisation is not just a tax tweak — it’s a structural shift aimed at long-term clarity and simplicity. But it will affect pricing, classification, and compliance systems across industries. Businesses must stay alert, especially MSMEs and those in IDS-affected sectors.
Need help updating your GST systems or filing returns after slab changes?
👉 Talk to Efiletax today — India’s trusted partner for GST and compliance services.
Summary
GST rate rationalisation is back on the agenda. The government may merge slabs like 12% and 18%, and address inverted duty structures. Understand what this means for your pricing, refunds, and GST compliance. Stay prepared with expert insights from Efiletax.