New Delhi | September 3, 2025

The Goods and Services Tax (GST) Council on Wednesday approved a set of measures designed to ease compliance for businesses, particularly small enterprises and exporters, according to government sources. Among the key decisions was reducing the registration timeline for medium, small, and micro enterprises (MSMEs) and start-ups from 30 days to just three. The council also cleared an automated refund mechanism for exporters, a long-pending demand aimed at improving liquidity for businesses dependent on overseas markets.

The two-day council meeting, which began earlier in the day, is centered around one of the biggest reforms in GST since its introduction—rationalisation of the existing tax structure. Currently, GST is divided into four slabs: 5, 12, 18, and 28 per cent. The government is now studying recommendations to cut these slabs by half, potentially moving towards a simpler two-slab framework.

As part of the proposal, nearly 90 per cent of goods under the highest 28 per cent bracket could be shifted to the 18 per cent category. Similarly, a substantial portion of items from the 12 per cent slab may be brought down to five per cent. The aim is to boost domestic consumption, reduce costs for the middle class, and encourage manufacturers to expand production. However, this reform is estimated to result in a revenue loss of approximately ₹50,000 crore.

Eight key sectors—textiles, fertilisers, renewable energy, automotive, handicrafts, agriculture, health, and insurance—are expected to gain the most from the restructuring. Additionally, life and health insurance premiums, currently taxed at 18 per cent, may be exempted from GST altogether.

Despite the broad benefits, some categories will remain unaffected. ‘Sin goods’ like tobacco, liquor, and luxury cars will continue to attract higher taxes, supplemented by new levies such as a Health Cess or Green Energy Cess, which may replace the existing Compensation Cess.

The proposals come against the backdrop of uneven revenue collections across the four slabs since GST was rolled out eight years ago. The government believes a rationalised system will not only help consumers but also soften the impact of global trade challenges, such as the recent 50 per cent tariff hike on Indian exports to the United States, announced by former President Donald Trump.

Still, resistance is expected from opposition-ruled states, including Tamil Nadu and West Bengal, who argue that the projected revenue loss is unsustainable without additional central support. Both states, heading into elections next year, are likely to demand clear compensation commitments before extending support to the reforms.

The council is set to continue discussions tomorrow in an effort to build consensus on what could become one of the most significant overhauls of India’s indirect tax system.