Prime Minister Narendra Modi, during his Independence Day address, announced a major revamp of the Goods and Services Tax (GST) system, promising to roll out next-generation GST reforms with significantly lower tax rates this Diwali. Calling it a “great festive gift” for the nation, Modi said the overhaul would simplify the tax structure and provide relief to individuals and businesses.

“I am going to give a great gift this Diwali. Over the past eight years, we implemented major GST reforms and simplified taxes. Now, the time has come for a review. We have conducted it, consulted with states, and are set to introduce a ‘next-generation GST reform’,” PM Modi declared from the Red Fort.

Currently, GST rates are spread across five slabs—0%, 5%, 12%, 18%, and 28%, with 12% and 18% being the most common for goods and services. About 21% of goods fall under the 5% slab, 19% under 12%, and 44% under 18%. The government is now considering eliminating the 12% slab and redistributing items between 5% and 18%, though the final structure has not yet been confirmed.

“This will be a Diwali gift. Taxes on essential services for individuals will be reduced substantially. MSMEs will benefit, daily-use products will become cheaper, and it will also boost the economy,” Modi asserted.

The proposed reform is seen as a major move to increase consumption and accelerate economic growth, especially at a time when global trade uncertainties and tariff tensions have created economic challenges. Experts believe that while lower GST rates could initially reduce government revenue, the long-term impact of higher compliance and greater sales volumes would offset the shortfall.

The next-generation GST reform is expected to benefit households, small businesses, and the overall economy by making the tax system simpler and more affordable.