GST reset may turn reform into festival cheer, analysts say

Prime Minister Narendra Modi’s Independence Day announcement of sweeping reforms to the Goods and Services Tax (GST) is expected to ease the tax burden on households and businesses and give a push to consumption, analysts said.

The overhaul, which comes alongside the income tax relief announced in the Union Budget 2025-26, could translate into potential savings of about Rs1 trillion ($11.5 billion) for taxpayers. Together, the measures underline a policy tilt toward reviving demand in the economy, analysts said.

Benchmark indices Sensex and Nifty surged on Monday, buoyed by the government’s plans for big bang reforms in the GST regime later this year as well as S&P upgrading India’s sovereign credit rating.

The government is preparing to replace the current four GST slabs of 5%, 12%, 18%, and 28% with a simpler structure of two main rates—5% for essentials and 18% for most other goods and services.

Nearly all items now taxed at 12% are likely to be shifted to 5%, while most items in the 28% bracket could move to 18%. A new 40% rate is being proposed for a narrow set of sin and luxury goods, including tobacco and high-end vehicles.

Motilal Oswal Financial Services said in a report that while details are still emerging, the government’s intent is clear.

“These moves show that the government has strengthened its focus on consumption revival,” the brokerage noted, adding that the proposals are expected to be discussed at the GST Council’s next meeting in September–October.

In his speech, Modi described GST, introduced in 2017, as a “significant reform” that has benefited the nation and said “GST 2.0” would be anchored in structural reforms, rate rationalization, and ease of living.

He promised relief for “the common man, farmers, middle class, and MSMEs,” calling the reforms a potential “Diwali bonanza.”

The plan has been referred to a Group of Ministers from six states for review before it is presented to the GST Council.

The panel is expected to meet several times over the coming weeks to finalise the structure so that changes can be rolled out ahead of the festive season.