Big Bang Reform: Finance Ministry Proposes Two-Slab GST System After PM Modi’s Speech

The Finance Ministry on Friday proposed a simplified two-tier Goods and Services Tax (GST) structure with a ‘standard’ and a ‘merit’ slab, along with special rates for select goods.

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The move follows Prime Minister Narendra Modi’s Independence Day address, where he announced that next-generation GST reforms will be unveiled by Diwali, promising substantial tax relief for the common man and benefits for small businesses.

The proposal, sent to the Group of Ministers (GoM) on GST rate rationalisation, outlines key reforms aimed at benefiting all sections of society — especially the middle class, women, students, farmers, and small traders.

Key Proposals

• Two-tier GST structure: Standard and merit slabs, plus special rates for specific goods.
• Lower taxes on essential and aspirational goods to boost affordability, accessibility, and consumption.
• Correction of inverted duty structures to reduce input tax credit accumulation and support domestic value addition.
• Simplified classification and compliance to minimise disputes and provide clarity for businesses.
• Long-term rate stability to enhance industry confidence and aid business planning.

According to the ministry, the end of the GST compensation cess has created fiscal space, allowing greater flexibility in rationalising and aligning tax rates for long-term sustainability.

PM Modi’s Diwali Gift

In a bold announcement from the Red Fort, PM Modi said,

“This Diwali, I am going to celebrate a double Diwali for you. The countrymen are going to get a big gift — there will be a drastic cut on GST on common household items.”

Calling GST rate reduction the “need of the hour,” he confirmed that tax cuts would directly benefit ordinary citizens.

The announcement comes as GST marks its eighth anniversary since its rollout in 2017, which replaced multiple indirect taxes with a unified system, significantly improving the ease of doing business, especially for small and medium enterprises.