GST Council Set to Rework 12% Tax Slab, Relief Likely for Service Intermediaries

 GST Council Set to Rework 12% Tax Slab, Relief Likely for Service Intermediaries

New Delhi | June 26, 2025

The upcoming meeting of the Goods and Services Tax (GST) Council is expected to take up a significant overhaul of the 12% tax slab, with discussions likely to include reducing or even phasing it out as part of a broader effort to simplify the tax structure. The meeting, now expected to be held in July 2025, comes after a delay of more than six months — well beyond the mandated quarterly schedule.

According to officials familiar with the matter, one of the key points on the agenda is the rationalisation of the 12% slab, which could lead to a more streamlined GST rate system. “As part of the Council’s ongoing drive to simplify the rate structure, reducing the number of items under the 12% category is under serious consideration. There’s even a proposal to eliminate the slab entirely,” a senior government official told.

If implemented, this change would leave the GST regime with just four primary slabs — 0%, 5%, 18%, and 28% — excluding special rates like 0.25% on rough diamonds and 3% on precious metals, as well as the compensation cess on certain luxury and sin goods.

Another major item on the Council’s agenda will be the taxation rules for service intermediaries. At present, these intermediaries — who facilitate services, often for foreign companies — are taxed at 18%, even when the services are effectively exports. Sources suggest this tax could be scrapped, potentially offering the sector relief running into thousands of crores.

The GST Council meeting was originally scheduled for June but was postponed amid disagreements among members over the venue. The July meeting will be the first since the beginning of the year, raising concerns about delays in key policy decisions.

Tax experts say the 12% slab may not be completely abolished right away. Saurabh Agarwal, Tax Partner at EY India, noted, “The more likely route is a gradual migration of goods out of the 12% category. Some may move to the 5% bracket, while others currently in the 18% slab — especially items that are no longer considered luxury — could be shifted down to 12%.”

He added that products like toothpaste and soap, now taxed at 18%, are increasingly seen as essentials due to changing consumption patterns driven by higher incomes. Shampoo, which can attract rates as high as 28%, might also come under review.

However, not everyone is optimistic about shifting goods to the 5% category. Some tax analysts point out that doing so could hurt manufacturers. “At the 12% rate, businesses can claim input tax credit on the raw materials and services they use. If goods are moved to 5%, that credit could disappear, increasing their production costs,” said one tax consultant.

With the Council’s focus on rate rationalisation and sector-specific reliefs, all eyes are now on the July meeting, which could mark a turning point in India’s complex GST framework.