Published on August 15, 2025

PM’s ‘Diwali Gift’: The GST Rate Cut You Can’t Ignore!

The festive season is a time of joy, family, and a lot of shopping. This year, Prime Minister Modi has announced what many are calling a “Diwali gift” that could make your celebrations even brighter—a significant overhaul of the GST structure aimed at reducing the tax burden on everyday items.

This isn’t just another tax tweak. It’s a strategic “next-generation” reform designed to simplify the tax system, boost the economy, and put more money back into the hands of the common man. From the ramparts of the Red Fort, the Prime Minister announced that the government is actively working on these reforms, with the aim of implementing them by Diwali.

At Tax2Save.in, we understand that tax changes, even positive ones, can be confusing. Our mission is to keep you informed and help you navigate these developments with ease. So, let’s explore this monumental GST rate cut and discover how it will benefit you and your festive budget.

A New Era of GST: The Two-Slab System

For years, the Indian GST system has been a multi-tiered structure with rates of 5%, 12%, 18%, and 28%. While it has formalized the economy, its complexity has often been a point of discussion. The new proposal aims to streamline this, moving towards a much simpler two-slab system—primarily 5% and 18%.

The most significant change is the proposed abolition of the 12% slab. As per government sources, a substantial 99% of the items currently falling under this bracket are likely to be shifted to the lower 5% slab. This is a game-changer for millions of households. Similarly, around 90% of items from the 28% slab are expected to be moved to the 18% category, with a new 40% rate reserved for a handful of ‘sin’ or luxury goods.

This reform is being lauded by tax experts for its potential to not only reduce prices but also to correct the inverted duty structure that has long plagued certain industries. By simplifying the rates, the government aims to reduce classification disputes, boost domestic manufacturing, and make Indian goods more competitive globally.

What’s Moving from 12% to 5%?

While the final list of goods and services is yet to be announced, sources suggest that this rate cut will have a direct and positive impact on a wide range of common consumer goods. Think of all the products you buy regularly for your household – many of them are about to get cheaper.

Here’s a look at the product categories likely to be affected:

• Processed and Packaged Foods: Items like ghee, butter, and various ready-to-eat preparations, which currently attract a 12% GST, are expected to be moved to the 5% slab. This will provide direct savings on your monthly grocery bill.
• Essential Household Items: Products like packaged coconut water and certain food preparations, currently taxed at 12%, will also become more affordable, giving you more bang for your buck during the festive shopping spree.
• Small Gadgets and Accessories: There are indications that some small electronic goods and mobile phones, currently in the 12% slab, could also see a rate reduction, making them more accessible to a wider audience.

Table: Expected GST Rate Changes and Consumer Impact

Current GST Rate	Proposed GST Rate	Product Category (Examples)	Expected Consumer Benefit
12%	5%	Ghee, Butter, Packaged Foods, Mobile Phones, Coconut Water	Significant savings on daily and festive provisions.
18%	18%	Hair Oil, Soap, Toothpaste, Ice Cream, Financial Services	No immediate change, but rate stability for better planning.
28%	18%	Consumer Durables (TVs, ACs), Luxury Goods	Huge savings on big-ticket items, boosting consumption.
28% + Cess	40%	Luxury/Sin Goods (e.g., Tobacco, Pan Masala)	Higher tax on demerit goods, promoting responsible consumption.

The Broader Impact: Benefits for Consumers and Businesses

This GST rate rationalization is a win-win for both consumers and the economy.

For Consumers:

• Direct Savings: The most obvious benefit is the reduction in prices, which will directly increase your purchasing power.
• Boosted Festive Budget: With products getting cheaper, you can afford to spend more on gifts, clothes, and other celebratory items without straining your finances.
• Inflation Control: Lower tax rates on essential goods will help in controlling inflationary pressures, leading to a more stable cost of living.

For Businesses:

• Simplified Compliance: A two-slab system means fewer classifications and less confusion, making tax compliance simpler for small businesses and MSMEs.
• Correcting Inverted Duty: The reform addresses the long-standing issue of inverted duty structure, which will free up working capital for manufacturers and exporters, boosting production.
• Economic Growth: By stimulating consumption, this move is expected to give a significant push to economic growth, benefiting all sectors in the long run.

Don’t risk penalties—let Tax2Save.in’s CA-led services take care of it. Our experts ensure accurate and timely compliance for your business, allowing you to focus on growth.

Compliance and Due Dates: A Guide for Business Owners

For business owners, the transition to the new GST rates requires careful planning. Here is a simple compliance checklist:

• Software Updates: Ensure your accounting and billing software is updated with the new rates as soon as the official notification is released.
• Inventory Management: Plan your inventory procurement to manage your Input Tax Credit (ITC) efficiently.
• GSTR Filing: Accurately report your sales and purchases under the new tax slabs in your GSTR-1 and GSTR-3B returns.

Mistakes to Avoid During the Transition

Failing to navigate the transition correctly can lead to penalties. Here are some key mistakes to avoid:

• Failing to Update Systems: Using old GST rates after the new rates are implemented can lead to incorrect invoicing and penalties.
• Anti-Profiteering Issues: The government has a strict anti-profiteering clause. Ensure that the benefits of the GST rate cut are passed on to the consumer and not pocketed by the business.
• Ignoring ITC Mismatches: With rate changes, it’s crucial to reconcile your GSTR-2A/2B to ensure you are claiming the correct ITC.

Expert Opinion on the GST Reforms

This commentary from a tax industry leader reinforces the positive sentiment surrounding these reforms.

Frequently Asked Questions (FAQs)

Q1: When will the new GST rates be implemented?

A: The government has indicated that the reforms will be rolled out by Diwali. The final dates will be announced by the GST Council.

Q2: Will all products become cheaper?

A: No, only the products whose GST rates are being reduced will see a price drop. Items currently in the 12% slab are the primary focus of this cut.

Q3: How will a simplified GST structure help me as a business owner?

A: A simpler structure with fewer slabs means less complexity in classifying goods and services, which can reduce compliance costs and the risk of disputes.

Q4: Will this affect my GST returns?

A: Yes, you will need to update your records and returns to reflect the new GST rates accurately. If you’re confused, our expert team at Tax2Save.in can help you file hassle-free.

Q5: What is the “inverted duty structure” and how does this reform fix it?

A: An inverted duty structure occurs when the tax on inputs is higher than on the final product. By reducing the tax on the final product from 12% to 5%, the government is correcting this imbalance, helping manufacturers.

Conclusion

The upcoming GST rate cut is more than just a reduction in tax—it’s a comprehensive reform that promises to simplify the system, stimulate the economy, and provide tangible benefits to every Indian household. As we head into the festive season, this “Diwali gift” from the government is a welcome step towards a more consumer-friendly and growth-oriented tax regime.

Need help navigating these changes or with your GST compliance? Connect with our experts at www.Tax2Save.in. We offer professional, CA-led services to ensure you stay compliant and make the most of every tax reform. Join 500+ clients who trust Tax2Save.in with their tax and compliance needs.

Professional Disclaimer

The information provided in this blog post is for general informational purposes only and does not constitute professional advice. While we strive to provide accurate and up-to-date information, tax laws and regulations are subject to change. Readers should consult with a qualified tax professional for advice tailored to their specific situation. Tax2Save.in is not responsible for any loss or damage caused by reliance on the information contained herein.

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