Modi Promises Diwali GST Relief as Government Eyes Simpler, Cheaper Tax Regime

On the 79th Independence Day, Prime Minister Narendra Modi used the Red Fort podium to offer a promise wrapped to fellow citizens-- by Diwali, India could have a “next-generation” Goods and Services Tax regime that is easier to navigate and lighter on household budgets.

The Finance Ministry has been working on a blueprint to revamp the current five-slab GST structure into a cleaner, two-tier system, with one lower ‘merit’ rate and a higher ‘standard’ rate, in addition to a small set of special rates for demerit and luxury goods. If implemented, the changes would mark the most significant reform to GST since its launch in 2017.

Tax Breaks To Give Breathing Space for the Middle-Class

Under the present system, goods and services are taxed at 0%, 5%, 12%, 18%, or 28%, with cesses added to certain items like tobacco and luxury cars. The 18% slab captures the largest share of products and services, from consumer durables to insurance premiums. Experts have often criticised the current GST system for breeding confusion due to its complexity and compliance burdens, especially for small businesses.

To ease matters, the new design under discussion would scrap the 12% band entirely, pushing items currently in that category down to 5% or up to 18%. Everyday consumption goods like packaged food, apparel, basic household items are under consideration for the lower rate, while higher-value products may move up.

Reuters cited Citi analysts estimate that roughly a fifth of items spanning packaged food and beverages, apparel and hotel stays currently fall within the 12% GST bracket, making up 5–10% of consumption and 5–6% of GST collections. If most of these are shifted to the 5% slab and some to the 18% slab, the resulting revenue loss could be around ₹500 billion, or 0.15% of GDP. This, Citi said, could lift the total policy stimulus for households in FY26 to 0.6–0.7% of GDP.

The Dilemma Around Insurance and Fuel Rates

Beyond slab rationalisation, the GST Council is weighing targeted reliefs. These changes are aimed to reduce household burden for GST on life and health insurance premiums from 18% to around 5%.

On petroleum, the story is more complicated. Petrol and diesel remain outside GST, with state governments dependent on VAT and excise for a sizeable share of their revenues. While bringing them under the GST net umbrella is a politically sensitive topic, the more feasible, and already under discussion pivot is the inclusion of natural gas and aviation turbine fuel, which could help industries recover input tax credits and lower operational costs.

Festive Optimism Awaited

For middle-class consumers, the prospect of lower tax on groceries, insurance, and other staples is welcome news. A rate cut could mean a little more left in the monthly budget a slight relief at the heels of rising living costs.

The GST Council, made up of state and central representatives, is expected to meet multiple times before Diwali to settle the list of items, rates, and revenue-sharing arrangements. The final package will determine whether Modi’s ‘double Diwali’ promise delivers more than the chatter.

For now, the hopes are pinned on a leaner tax structure, selective rate cuts, and a cautious eye on state finances.