In a landmark move, the 56th GST Council—chaired by Union Finance Minister Nirmala Sitharaman—has approved a streamlined dual-slab Goods and Services Tax (GST) structure of 5% and 18%, effectively abolishing the existing 12% and 28% tax brackets.

The decision, reached during the Council’s two-day meeting from September 3 to 4, has been hailed as one of the most significant tax reforms in nearly a decade. Everyday consumer items such as toothbrushes, shampoos, small cars, air conditioners, and televisions are likely to benefit from lower tax rates, boosting affordability and demand during the festive season.

Notably, the Council has elevated the 5% GST threshold on footwear and apparel, raising the price cap from ₹1,000 to ₹2,500—meaning a broader range of clothing and footwear now enjoys reduced taxation.

To balance revenue implications, a 40% “sin and luxury” GST slab will continue to apply to select high-end and demerit products, including luxury vehicles, cigarettes, and tobacco—ensuring fiscal protection for government coffers.

The reform package goes beyond tax rates. It includes administrative upgrades like faster GST registration for non-risk businesses (within 3 days), expedited refunds—especially for exporters and industries with inverted duty structures—and procedural support for MSMEs.

However, several opposition-led states—including Kerala, West Bengal, Tamil Nadu, Karnataka, and others—are urging the Centre to provide compensation for anticipated revenue losses. These states fear the new structure could erode their fiscal base unless adequate safeguards are instituted.

The overall reform—dubbed “GST 2.0″—is expected to simplify compliance, lower prices for consumers, and potentially boost demand by reducing inflation pressures. Yet, the final impact will hinge on implementation nuances and mechanisms to offset losses faced by states.