GST Rate Cuts on the Horizon: What They Mean for Consumers and Businesses

The Goods and Services Tax (GST) Council is set to deliberate major structural changes at its 56th meeting on September 3–4 in the national capital. Key proposals include widening the nil-rate slab, merging existing tax brackets, and cutting GST on select items currently taxed at 18%, ahead of the festive season.

If implemented, these changes could significantly lower the cost of everyday essentials. Items under consideration for a zero tax rate include ultra-heat-treated (UHT) milk, pre-packaged paneer, pizza bread, khakhra, chapati, and roti. Frozen foods such as parathas and parottas, which currently attract 18% GST, may also be shifted to the nil-rate category following recommendations from the Group of Ministers on rate rationalisation.

However, tax experts caution that the real savings for consumers will depend on one critical factor: product categorisation under GST.

Categorisation Confusion Remains a Challenge

While the reduction in slabs is being welcomed, experts argue that the bigger hurdle lies in how products are classified.

“The law is based on highly technical HSN codes and descriptions, which often do not align with common trade terms,” said Amit Baid, Head of Tax at BTG Advaya. “This disconnect creates ambiguity and opens the door to multiple interpretations and legal disputes.”

He highlighted examples of inconsistent taxation:

• Popcorn: Loose corn at 5%, packaged popcorn at 12%, caramel popcorn at 18%.

• Fruit drinks: A mango drink attracts 12%, but adding fizz raises it to 28% plus a 12% cess.

• Ice cream: 5% in a restaurant dessert, 18% at an ice-cream parlour.

• Paratha vs Roti: Roti is taxed at 5%, while frozen parathas often fall under the 18% slab.

• SUVs: A few millimeters of ground clearance can decide whether a vehicle is taxed at 28% plus 22% cess.

Impact on Small Businesses

According to Baid, ambiguous classifications disproportionately hurt small businesses. Unlike large corporates, SMEs cannot afford to hire tax consultants for every product line. Misclassification can lead to heavy penalties or lost customers, eroding already thin margins.

The Case for Simplification

Experts recommend moving toward a “one product, one rate” system to reduce disputes and compliance complexity. Baid also called for plain-language guidelines, a unified database of advance rulings, and state-level clarifications that are binding nationwide.

“Reducing slabs is a good headline, but without clear definitions, disputes will continue,” Baid said. “Right now, it’s like cleaning the floor without fixing the leaking tap.”

Long-Term Gains Expected

While immediate benefits may vary across products, experts believe rationalisation will deliver greater clarity and predictability over time, reducing litigation risk and stabilising prices.

“A simpler GST structure lowers compliance costs for businesses, allowing them to reinvest in operations or reduce prices. This can boost demand and economic growth while making the tax system feel fairer and more transparent for consumers,” Baid added.