Why the 12% and 28% GST Slabs Were Removed

Ever stood at a billing counter wondering why a pack of biscuits was taxed at 12% while a restaurant meal attracted 18%, even though both are everyday purchases? You’re not alone. For years, India’s GST structure confused both customers and businesses with its too-many-slabs problem.

When GST was first introduced in 2017, it had multiple tax rates, 5%, 12%, 18%, and 28%, plus exemptions and cess on some items. While the system unified India’s indirect taxes, it also created a maze of rates that were difficult to understand, apply, and justify.

That’s why, in September 2025, the government rolled out GST 2.0, a complete overhaul of the tax system. The 12% and 28% slabs were scrapped to make GST simpler, fairer, and more transparent.

Think of it as a long-overdue software update: the earlier version worked, but it was cluttered and buggy. The new update, GST 2.0, runs smoother, with just three clear slabs: 5%, 18%, and 40%.

In this blog, we’ll explain why the 12% and 28% GST slabs were removed, what this change means for you, and how it’s reshaping India’s tax structure for the better.

Why Were the 12% and 28% GST Slabs Removed?

The removal of the 12% and 28% GST slabs wasn’t random, it was a carefully planned step towards making India’s tax system simpler, fairer, and easier to follow. Let’s break down why the government decided to do it.

🧩 1. Too Many Slabs = Too Much Confusion

The original GST system had four main slabs (5%, 12%, 18%, 28%) plus exemptions. While this gave flexibility, it also created massive confusion.

• Businesses constantly struggled to figure out which rate applied to which product.
  
• Consumers had no idea why two similar items could have different taxes.
  

Example:
A simple restaurant meal was 18%, but a takeaway snack could be 12%. Branded biscuits? 18%. Unbranded ones? 5%. The result, billing errors, disputes, and customer frustration.

By removing the 12% slab, GST 2.0 made the system clearer and more consistent.

⚖️ 2. Making the System Fairer

The 28% slab was often seen as “unfairly high” for certain goods that weren’t exactly luxury items but ended up being taxed like one.

• Items like paints, refrigerators, and air-conditioners were taxed at the same rate as luxury cars or tobacco.
  
• This distorted prices and discouraged middle-class consumption.
  

By eliminating the 28% slab and introducing a new 40% rate only for genuine luxury or sin goods, the government separated daily comfort from luxury indulgence, creating a fairer system.

📊 3. Simplification and Compliance

Too many slabs meant too many disputes and too much paperwork. Businesses often made mistakes, leading to GST notices or blocked Input Tax Credits (ITC).

Now, with just three slabs, 5%, 18%, and 40%,** compliance becomes easier**:

• Fewer rates to remember.
  
• Easier invoice matching.
  
• Less chance of classification errors.
  

For small businesses and MSMEs, this is a huge relief.

🌍 4. Aligning with Global Practices

Globally, most countries have two or three GST/VAT rates, not four or five. By reducing slabs, India is aligning itself with international best practices, making it easier for foreign investors and multinational firms to operate here.

Example:
Countries like Singapore, Australia, and Canada follow a simpler GST model, usually one standard rate and a lower one for essentials.

💰 5. Encouraging Consumption and Growth

The 12% and 28% slabs created pricing friction, meaning certain goods became less affordable, slowing demand.

• Reducing these slabs makes pricing more predictable.
  
• Encourages consumers to spend more on mid-range products.
  
• Helps MSMEs, retailers, and manufacturers grow faster.
  

👉 In simple words: Removing 12% and 28% slabs was like decluttering a messy wardrobe, it makes finding (and taxing) the right items easier, fairer, and more efficient for everyone.

Impact of Removing 12% and 28% GST Slabs on Consumers and Businesses

The decision to scrap the 12% and 28% GST slabs has brought about a wave of changes across the economy. Some are visible at the billing counter, while others show up quietly in business accounts and market prices.

Here’s how it’s playing out 👇

👨‍👩‍👧‍👦 Impact on Consumers: Simpler Bills, Fairer Prices

For ordinary shoppers, the removal of 12% and 28% slabs means less confusion and fairer pricing across categories.

1. Cheaper essentials and mid-range goods
   
   • Items like packaged foods, cosmetics, household products, and electronics that earlier fell under 12% or 28% now mostly fall under 5% or 18%.
     
   • Example: Refrigerators, air-conditioners, and washing machines that were once taxed at 28% now attract 18%, making them more affordable for middle-class families.
     
2. Transparent billing
   
   • No more guessing which slab applies, a uniform 18% for standard goods means clearer bills and fewer disputes.
     
3. More purchasing power
   
   • The combination of lower taxes on essentials and simpler rates leaves consumers with more disposable income for savings or leisure spending.
     

🏪 Impact on Small Businesses and MSMEs: Less Compliance, More Clarity

For India’s small traders and MSMEs, the earlier system was a paperwork nightmare. Too many slabs meant too many mistakes, and often, penalties.

Now, GST 2.0 brings simplicity and predictability:

• Fewer slabs = fewer errors.
  
• Easier to price products correctly and manage inventory.
  
• Simplified Input Tax Credit (ITC) reconciliation saves both time and money.
  

Example:
A furniture manufacturer earlier had to classify dining tables (12%) and wardrobes (28%) separately. Under GST 2.0, both now fall under 18%, simplifying invoicing and compliance.

💎 Impact on Premium Sectors: Clearer Classification, Slight Price Rise

Luxury goods that previously fell under 28% + cess are now under a flat 40% slab.

• High-end cars, imported liquor, and designer goods are more expensive.
  
• However, this separation brings policy clarity, true luxury is taxed heavily, while aspirational goods are not unfairly burdened.
  

📊 Overall Economic Impact: More Efficiency, Less Litigation

• Businesses spend less time on compliance and more on growth.
  
• Consumers understand their tax bills better.
  
• Fewer rate disputes mean smoother functioning of the GST ecosystem.
  

This move also supports Make in India, as simplified taxes encourage domestic production and discourage unnecessary imports.

👉 In short:
The removal of the 12% and 28% slabs simplifies India’s tax structure, reduces confusion, and boosts affordability for millions of families, while still keeping luxury items in check.

Pros and Cons of Removing 12% and 28% GST Slabs (GST 2.0)

✅ Pros

1. Simpler Tax System
   
   • With just three slabs (5%, 18%, and 40%), the GST structure is now easier to understand and implement.
     
   • Businesses and consumers can identify tax rates quickly, reducing disputes and confusion.
     
2. Lower Prices on Mid-Range Goods
   
   • Many items previously taxed at 12% or 28% are now under 18%, making them cheaper and more accessible.
     
   • Example: Air conditioners, TVs, and washing machines now cost less than before.
     
3. Reduced Compliance Burden for Businesses
   
   • Small traders and MSMEs no longer have to deal with overlapping slab classifications.
     
   • Simplified tax returns and easier Input Tax Credit (ITC) claims.
     
4. Boost to Consumption and Economic Growth
   
   • Lower and clearer rates encourage more spending in key sectors like retail, FMCG, and electronics.
     
   • Higher demand = more production = more jobs.
     
5. Global Alignment and Investor Confidence
   
   • Aligns India’s tax system with global best practices, most countries have just two or three tax rates.
     
   • Builds confidence among foreign investors operating in India.
     

❌ Cons

1. Reduced Government Revenue (Short Term)
   
   • Removing higher slabs means lower tax collection from mid-range goods.
     
   • The government will rely more on the 40% luxury slab for revenue.
     
2. Initial Transition Challenges
   
   • Businesses need to update billing systems, software, and pricing, which may cause temporary confusion.
     
3. Potential Misclassification Risks
   
   • Some traders might attempt to classify goods strategically to benefit from lower slabs, calling semi-luxury items “standard goods.”
     
   • Could lead to stricter GST audits and oversight.
     
4. Luxury Segments May Face Demand Dip
   
   • Since true luxury goods now attract 40%, there might be a short-term slowdown in premium car, jewellery, and imported goods sales.
     
5. Dependence on Consumption Growth
   
   • The system’s success depends on how much consumer demand increases, higher spending must offset reduced tax rates.
     

👉 In summary:

Scrapping the 12% and 28% GST slabs is a bold but balanced move. It simplifies life for consumers and businesses while shifting India toward a cleaner, globally competitive tax model. The short-term adjustment pain is real, but the long-term payoff is a simpler, smarter GST system.

Conclusion: A Simpler, Fairer GST for India

The removal of the 12% and 28% GST slabs under GST 2.0 marks one of the most important tax reforms since the GST’s launch in 2017. For years, India’s multiple-slab structure led to confusion, disputes, and uneven pricing. By streamlining it into just three clear slabs, 5%, 18%, and 40%, the government has made the system simpler, fairer, and easier to comply with.

For consumers, this means lower prices on mid-range goods, clearer bills, and less confusion about tax rates. For small businesses, it means reduced compliance burdens and fewer classification errors. And for the economy, it sets the stage for long-term stability and global competitiveness.

Of course, every reform comes with challenges, businesses must adjust, and revenue will rebalance, but in the bigger picture, this is a step toward a cleaner, transparent, and growth-friendly tax ecosystem.

👉 The bottom line: Fewer slabs, fewer headaches, and more fairness. GST 2.0 finally delivers on the promise of “One Nation, One Tax.”

FAQs on Removal of 12% and 28% GST Slabs (2025)

Q1. Why were the 12% and 28% GST slabs removed in 2025?

The government removed these slabs to simplify the GST structure and reduce confusion. GST 2.0 now has three main slabs, 5%, 18%, and 40%, making taxation clearer and fairer.

Q2. What are the new GST slabs after GST 2.0?

Under GST 2.0, there are three primary rates:

• 5% – Essentials like food, medicines, and agricultural goods
  
• 18% – Standard goods and services (electronics, dining, clothing)
  
• 40% – Luxury and sin goods (cars, alcohol, tobacco, high-end products)
  

Q3. How does removing the 12% slab affect consumers?

Goods that were earlier taxed at 12%, like packaged foods, cosmetics, and some appliances, now fall under 5% or 18%. This has made mid-range items more affordable and reduced price variation.

Q4. Why was the 28% GST slab controversial?

The 28% slab grouped mid-range goods with luxury items, which many saw as unfair. For example, paints and refrigerators were taxed the same as premium cars. GST 2.0 fixed this by introducing a 40% slab only for genuine luxury items.

Q5. How do these changes help small businesses?

MSMEs benefit from simpler compliance, fewer slab classifications, and easier ITC claims. With fewer rates, there’s less paperwork and lower risk of error.

Q6. Will government revenue decrease after removing 12% and 28% slabs?

Initially, yes, but the 40% slab on luxury and sin goods helps balance revenue. Over time, higher consumption from lower rates on essentials and mid-range goods is expected to offset this.