New Delhi, Aug 21: In a major tax reform move, the Union Cabinet has accepted the Finance Ministry’s proposal to streamline the Goods and Services Tax (GST) structure, reducing the existing four slabs to just two — 5% and 18%.

The decision was taken during Thursday’s meeting of the Council of Ministers, following recommendations from the Group of Ministers (GoM) on rate rationalization.

Under the revised structure, nearly 99% of goods currently taxed at 12% will shift to the 5% slab, while around 90% of items under the 28% category will move to 18%. Essential daily-use items will now attract only 5% GST, offering significant relief to poor and middle-class households.

Luxury and sin goods such as tobacco, pan masala, and alcohol-related products will be placed under a separate 40% slab, ensuring that revenue from high-end consumption remains unaffected. However, petroleum products will remain outside the GST framework, as no consensus has been reached on their inclusion.

Finance Minister Nirmala Sitharaman emphasized that the reform aims to simplify the indirect tax system, improve compliance, and foster a transparent and growth-oriented regime. The new structure is expected to boost consumption and reduce the tax burden on essential commodities.

The GST Council is expected to formally ratify the GoM’s recommendations in its upcoming session, paving the way for implementation possibly by Diwali this year.