According to sources exclusive to CNBC-TV18, these include a new “special rate” of 35% on tobacco and aerated beverages, revised rates for cosmetics, watches, shoes, and handbags based on price brackets, and reduced GST for daily-use items such as bottled water, bicycles, and exercise books.
The GoM, chaired by Minister of State for Finance Pankaj Chaudhary, has been tasked with crafting a taxation framework to replace the compensation cess, which is set to end in March 2026. The panel’s report, nearing completion, is expected to be discussed at the GST Council meeting in Jaisalmer on December 21.
Sources indicate that the GoM has proposed the following key changes:
- Tobacco and aerated beverages to attract a special 35% GST rate.
- Ready-made garments (RMG) priced up to ₹1,500 to attract 5%, ₹1,500-10,000 to attract 18%, and those above ₹10,000 to attract 28%.
- Luxury goods such as high-end cosmetics, watches, shoes, and handbags to fall under the 28% slab.
- Essential items like bottled water, bicycles, and exercise books to see reduced GST rates.
The GoM is also reportedly in favour of reducing rates on daily-use items to alleviate the tax burden on common citizens.
Introduced to compensate states for revenue shortfalls post-GST implementation, the compensation cess—levied on sin and luxury goods—was extended to repay loans worth ₹2.69 lakh crore taken during the pandemic.
With the cess slated to end in 2026, the GoM’s recommendations on whether to continue the levy or introduce alternate taxes will shape the GST regime’s future.
Additionally, the GoM’s report includes discussions on revising GST on insurance premiums and procedural amendments. If the loans are repaid earlier than anticipated, the GoM will also address the treatment of excess cess collected.
As deliberations continue, the final recommendations will require GST Council approval, signalling potential major reforms in India’s indirect tax structure.
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