Abolishing 28% Tax Slab By GST Council- Impacts On Indirect Taxation

Since the launch of GST in july 2017, one of the most significant decision was taken during the 56th meeting of the GST Council, where the Council replaced the four-tier system with a simplified three-band structure:

• 5% (Merit Rate): Essentials
• 18% (Standard Rate): Most goods and services
• 40% (De-Merit Rate): Sin goods like tobacco, pan masala, aerated and caffeinated drinks

The change could be said to be a result of the criticism of the four-tier system for creating disputes, compliance hurdles, and higher consumer prices, thereby elimination of the 28% slab, with an expectation of reshaping the pricing, consumption, and industry dynamics ultimately.

Removal of the 28% Slab:-

Previously, only luxury items and sin goods were accounted under the 28% category,  which were later expanded to include items such as cement, automobiles, as well as consumer durables. These item were neither counted as  luxury items nor harmful products, thereby resulting in a distorted pricing system as well as reduced competitiveness.

The revised system redistributes the goods in following categories-

Items Shifted from 28% → 18% Tax Slab

• All kinds of Cement
• Automobiles:-  Motorcycles (up to 350cc), Small Cars, Buses, Trucks, Ambulances
• Consumer Durables:- which included items such as Air conditioners, televisions, dishwashers
• Auto Parts

Items which were shifted from 28% → 40% Tax Slab

• Tobacco Products including gutkha, pan masala, cigarettes, bidis, reconstituted tobacco, etc. 
• Beverages including aerated and caffeinated drinks

The change brought in the tax slabs reflects a dual strategy- discouraging unhealthy consumption while making industrial as well as essential goods cheaper.

How will it Impact the Manufacturers?

1.Pricing and Competitiveness

The manufacturers of such goods which have been moved to 18% will either lower their MRPs to boost the demand or will retain margins for profitability. In competitive sectors including cement and autos, price cuts could be expected in order to stimulate their higher sales volumes.

On the other hand, such industries which have been included under the 40% slab will have to contend with the reduced margins or higher retail prices, thereby dampening their demand.

2.Tax Credit and Liquidity

The Council has also introduced inverted duty structures (notably in textiles and fertilisers) as well as a 90% provisional refund mechanism. Such changes would  ease the cash-flow constraints as well as improving the ITC utilisation, thus reducing the working capital stress for businesses.

3.Compliance Requirements

The Manufacturers will have to-

• Update their billing systems by 22nd September 2025
• Revise their contracts with dealers
• Account for transitional inventories which have been purchased under the 28% tax slab

How will it Impact the Dealers

1.Procurement Costs

Dealers would benefit from the lower GST on invoices, which shall improve the  liquidity and hence enabling the competitive pricing strategies.

2.Transitional Challenges

Stock which was bought at 28% before the introduction of the new system, will require accurate ITC claims and adjustments in line with the revised manufacturer pricing.

3.Market Demand

Cheaper cement, cars, as well as durables will be expected to increase the sales volumes. To some effect, the tobacco and beverage dealers may see a decline in the demand due to higher taxes.

From Consumers’ point:-

For consumers, the reforms in short could be translated as affordable homes, mobility, and appliances-

• Cement: Lower housing and infrastructure rates
• Automobiles: cars and two-wheelers will be cheaper
• Durables: TVs, ACs, and dishwashers will be affordable

Also, higher taxes on the products such as tobacco and sugary drinks will serve the  public health agenda, thereby resulting in a decrease in harmful consumption.

Conclusion

The removal of the 28% slab could be marked as a structural and symbolic reform- simplifying the GST rates, boosting the competitiveness in the industries, and having the taxation system aligned with the social priorities.

All in all, the September 2025 GST reform could be termed as a decisive step towards a simpler, pro-consumer, and growth-oriented indirect tax regime.

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