Branded Clothes and Food Items May Soon Get Cheaper: GST Council Mulls 5% Tax Slab

Relief may soon be on the way for household budgets across India. The government is preparing a major reform in the Goods and Services Tax (GST) system, aimed at making everyday essentials more affordable and simplifying the tax structure. According to official sources, the upcoming GST Council meeting, chaired by Union Finance Minister Nirmala Sitharaman, is likely to discuss a proposal to bring branded clothes and several food items under the lowest tax slab of 5 percent.

If approved, this move could significantly reduce prices of items that directly affect the common consumer, providing a boost to purchasing power at a time when inflation continues to strain household expenses.

GST Simplification: From Multiple Slabs to Two

Currently, goods and services in India fall under multiple GST slabs, making the system complex and often burdensome for consumers. The government is now considering restructuring it into two major slabs – 5 percent and 18 percent – while keeping a higher 40 percent slab for luxury goods and certain special items.

By placing branded apparel, packaged food products, and common grocery essentials in the 5 percent bracket, consumers would benefit from direct price cuts. For example, food grains, spices, and ready-to-eat items, which are currently taxed differently, would all fall into a simplified lower category.

Upcoming GST Council Meeting

The final decision is expected during the GST Council’s meeting scheduled for September 3 and 4, where representatives from the Centre and all states will participate. Since states depend heavily on GST revenue, concerns over potential revenue loss will be discussed, with the Centre expected to consider compensation mechanisms to offset the shortfall for states.

Wider Tax Reductions Under Consideration

Beyond clothes and food items, several other sectors could also see relief:

• Cement: The GST rate may be reduced from 28 percent to 18 percent, a move that could lower construction costs and potentially make housing more affordable.

• Salon and Beauty Services: Tax rates could be cut from the existing 18 percent to just 5 percent, making personal care services cheaper for urban consumers.

• Health Insurance: Perhaps the most impactful proposal is to reduce GST on health insurance premiums from 18 percent to zero. If approved, this could significantly improve healthcare accessibility by making insurance policies more affordable for millions.

Impact on Consumers and the Economy

Economists believe that lowering taxes on essential goods and services would give consumers more room to spend, boosting demand and driving business activity. Branded clothing, which often falls outside the budget of middle-class families, could become more affordable. Similarly, everyday food items becoming cheaper would directly benefit households across urban and rural India.

The move also has potential long-term benefits for the economy. A simplified GST structure reduces compliance burdens for businesses, encourages formalization, and fosters transparency. Increased consumer spending could, in turn, drive higher overall tax collection despite lower rates.

Challenges and State Concerns

However, the proposals are not without challenges. State governments, which share a large portion of GST revenue, worry about reduced collections. The Centre will need to negotiate compensation models, at least in the short term, to ensure states are not financially strained.

Industry experts also caution that while reducing taxes may help consumers, the government must ensure that businesses pass on the benefits instead of keeping profit margins higher. Effective monitoring and strict anti-profiteering measures would be necessary.

Possible Rollout by Next Month

If the GST Council reaches a consensus, the new tax slabs could be implemented as early as next month. This would bring immediate relief to millions of consumers and signal a major policy shift toward making taxation more people-friendly.

In summary, the proposed changes in GST rates could make branded clothes, daily food essentials, personal care services, and even health insurance more affordable for the average Indian. For households balancing rising expenses, this reform could be a welcome festival-season gift from the government.