Goods and Services Tax (GST) rates on various products may soon be reduced, as Finance Minister Nirmala Sitharaman announced in Parliament on February 11, 2025. The GST Council is currently reviewing tax slabs to simplify the structure and ease the burden on consumers and businesses. If implemented, these changes could have a significant impact across various sectors and the broader economy.
Let’s explore how the expected GST rate cuts could affect different stakeholders.
What’s Happening?
On February 11, Finance Minister Nirmala Sitharaman informed the Rajya Sabha that a reduction in GST rates could be expected. She further stated that the GST Council is working on streamlining the existing tax slabs.
The Council is conducting a detailed review of all taxable items to identify potential rate reductions. Discussions are underway regarding the possibility of merging the current tax slabs into fewer categories — potentially consolidating them into four, three, two, or even a single rate.
GST Collection Trend in India
As per the latest data, GST collections for January 2025 stood at Rs 1,95,506 crore, reflecting a 12.30% YoY increase from Rs 1,74,106 crore in January 2024. Since its introduction, GST collections have shown consistent growth, except in 2020-21 due to the COVID-19 pandemic.
Despite temporary setbacks during the COVID-19 pandemic, GST collections have been on an upward trajectory since its inception.
Will the Government Lose Revenue Due to Rate Cuts?
In the short term, a reduction in GST rates may lead to a dip in government revenue. However, increased consumer demand and economic activity could offset this decline. Over time, tax collections are expected to stabilise and follow the existing upward trend.
According to the Union Budget 2025, 66% of the government’s revenue comes from taxes — both direct and indirect. Within the indirect tax category, GST contributes 18% of the total revenue, making it the single largest contributor.
Key Highlights from the 55th GST Council Meeting
During its 55th meeting on December 21, 2024, the GST Council proposed several changes aimed at simplifying the tax structure and improving compliance. Some of the key recommendations include:
No GST on Gene Therapy: The GST Council has recommended a full exemption of GST on gene therapy treatments.
Insurance Contributions Exempt: Contributions made by general insurance companies from third-party motor vehicle premiums to the Motor Vehicle Accident Fund will not attract GST.
No GST on Vouchers: Vouchers will not be considered goods or services, meaning no GST will be charged on their transactions. The rules around vouchers are also being simplified.
No GST on Loan Penal Charges: Banks and NBFCs will not have to pay GST on penal charges collected from borrowers for not following loan terms.
Lower Pre-Deposit for Appeals: The GST Council has suggested reducing the pre-deposit amount required to file an appeal if the case only involves a penalty.
Reduced GST on Fortified Rice Kernels (FRK): The GST rate on Fortified Rice Kernels (FRK), classified under 1904, has been reduced to 5%.
What Does This Mean for Investors?
A reduction in GST rates could lower production costs for manufacturing companies, leading to increased consumer demand. Higher demand could improve corporate profits, positively impacting stock prices.
For example, a reduction in GST on automobiles could make vehicles more affordable, stimulating demand and benefiting the entire sector. Similarly, rate cuts across other industries could create tailwinds for business growth.
However, the exact impact on different sectors will only be clear once official announcements on revised GST rates are made.
What’s Next?
If implemented, these GST rate cuts would mark a significant step toward a simplified tax structure, reducing the burden on consumers and businesses alike. While a short-term revenue dip is possible, the long-term benefits — including economic growth, higher consumer spending, and improved industry profitability — could outweigh the initial concerns.
As discussions continue, the final decision on revised tax slabs will determine the extent of benefits for businesses, investors, and the overall economy.
*This article is for informational purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
