Why in news?
At its 56th meeting in September 2025 the Goods and Services Tax (GST) Council recommended consolidating the tax rate structure into two main slabs—5 per cent and 18 per cent—along with a special 40 per cent rate for sin and luxury goods. The goal is to simplify the indirect tax system and improve compliance.
The GST Council
The GST Council is a constitutional body created under Article 279A of the Constitution through the 101st Amendment. It recommends GST rates, exemptions and rules to ensure uniformity across the Union and states.
- Composition: The Union Finance Minister chairs the council. Members include the Union Minister of State for Finance and the finance or taxation ministers of all states and union territories. If a state is under President’s Rule, the President can nominate a representative.
- Quorum and voting: At least half of the total members must be present. Decisions are usually reached by consensus; if voting is necessary, the Union government’s vote counts as one‑third and the states collectively have two‑thirds. A decision requires at least 75 per cent of the weighted votes.
- Functions: The council recommends GST rates and exemptions, addresses inverted duty structures, proposes model GST laws and coordinates special rates during disasters to avoid tax disparities.
The two‑slab reform
Under the proposed rationalisation, most goods and services will fall under 5 per cent or 18 per cent GST. A higher 40 per cent rate will apply to tobacco, alcohol substitutes and other sin or luxury items.
- Simplicity: Fewer slabs simplify compliance and reduce classification disputes.
- Equity: Essentials are taxed at a lower rate, while luxury and demerit goods attract a higher tax burden.
- Revenue buoyancy: Streamlining the structure is expected to plug leakages, improve revenue collection and reduce compliance costs for businesses.
The two‑slab structure aims to make GST easier for businesses and consumers alike while ensuring adequate revenue for development and public services.