GST rate overhaul: Textiles, fertilisers, and autos among eight sectors to benefit the most

The Centre has sent its proposal, which removes 12% and 28% slabs, to the panel of state finance ministers on GST rate rationalisation. They will now discuss it and place it before the GST Council. The council is expected to meet next month.

While nil or zero% GST is charged on essential food items, 5% is charged on daily use items, 12% on standard goods, 18% on electronics and services and 28% on luxury and sin goods. The revamped GST regime will have two slabs plus a special rate of 40% for luxury and sin goods, PTI reported.

When the revamped structure is approved by the GST Council, 99% of items in the current 12% slab will move to the 5% bracket. Similarly, almost 90% of goods and services that are currently charged at 28% would shift to an 18% tax rate.

The special rate of 40% would be levied on only about 7 items, the report said, adding tobacco would also fall under this rate, but the total incidence of taxation would continue at the current 88%.

Online gaming is also likely to be treated as a demerit goods category and attract the highest tax rate.

As many as eight sectors – textiles, fertiliser, renewable energy, automotive, handicrafts, agriculture, health and insurance – will benefit the most from the GST rate overhaul as per the Centre's proposal for ushering in the next generation of GST reform.

The revamped GST is expected to give a big boost to consumption, offsetting the revenue loss that may occur from the rate revision, they said.

"There will be a gap in revenues because of the rejig, but the revenue will be offset in the next few months," a government source said, adding that the new slab structure would be implemented by the early third quarter.

Under the present GST structure, which came into being after central and state levies were subsumed beginning July 1, 2017, the highest 65% tax collections happen from the 18% levy. The top tax bracket of 28% on luxury and sin goods contributes 11% of the revenue, while the 12% slab accounts for just 5 per cent of the revenue.

The lowest 5% levy on essential daily-use items contributes 7% of the total GST kitty.

High labour-intensive and export-orientated sectors like diamonds and precious stones would continue to be taxed as per the existing rates.

Elaborating on the timing for reforms, the report said "piecemeal GST rate changes" could not have happened now, as the compensation cess, which is levied on luxury and demerit goods, was coming to an end once the repayment of the borrowed loans is complete.

Also, multiple GST rates in the supply chain were leading to evasion, as fraudsters were generating fake invoices to claim input tax credit.

Under the GST law, a maximum of 40% tax can be levied on goods and services.

GST Collections in July 2025

Gross GST collection increased 7.5% to about ₹1.96 lakh crore in July 2025, on higher domestic revenues.

Gross Goods and Services Tax (GST) mop-up was ₹1.82 lakh crore in July 2024. Last month, the collection was ₹1.84 lakh crore.

The gross domestic revenue grew 6.7% to ₹1.43 lakh crore, while tax from imports rose 9.5% to ₹52,712 crore.

GST refunds shot up 66.8% year-on-year to ₹27,147 crore.

The net GST revenue stood at ₹1.69 lakh crore in July 2025, recording a 1.7% year-on-year growth.

EY India Tax Partner Saurabh Agarwal said that despite some global pressures and temporary dips, the overall trend shows a stable consumption pattern and consistent growth trajectory of the economy.

"The government's timely refund process is also a great help to businesses, ensuring they have the working capital they need," Agarwal added.