Union Finance Minister Nirmala Sitharaman is gearing up to push Prime Minister Narendra Modi’s call for GST reforms at the 58th GST Council meeting happening today and tomorrow. The big agenda? Cutting GST rates on about 175 items—from cars to soap and air conditioners—and simplifying the current four-tier tax system into just two slabs.

The GST Council, which includes finance ministers from the central and state governments, will focus on rate rationalization, making compliance easier, and possibly introducing new compensation plans. An officers’ meeting was held on Tuesday to set the stage before the council meets.

The plan on the table is to shift from the current four GST slabs—5%, 12%, 18%, and 28%—to a simpler two-slab system: 5% for essentials and 18% for non-essential goods. There may also be a higher 40% slab for luxury or “sin” goods like tobacco and cars priced above ₹50 lakh.

The GST fitment panel has already given the green light to this two-tier approach.

According to Reuters, India is expected to slash GST by at least 10 percentage points on nearly 175 items. Everyday essentials like toothpaste, shampoo, talcum powder, and soaps might see GST drop from 18% to just 5%. Even butter, cheese, and ready-to-eat foods like pickles and snacks could fall into the lower 5% slab.

This change will be a big win for consumer goods giants like Hindustan Unilever, Godrej, and Nestle.

On the other hand, the 18% slab will now include consumer electronics—think TVs, air conditioners, refrigerators, and washing machines—that currently attract 28% GST. Cement will also become cheaper with GST reduced from 28% to 18%.

Small petrol cars with engines up to 1,200cc will likely see GST drop to 18% from 28%, and this benefit could extend to small hybrid cars too. This is great news for companies like Maruti Suzuki and Toyota but less so for electric car makers like Tata Motors and Mahindra, especially if GST on electric cars priced between ₹20-40 lakh goes up from 5% to 18%. Luxury electric vehicles from Tesla and BYD could face even higher taxes.

Two-wheelers might also get a break, with GST expected to fall from 28% to 18%. This should help boost sales for Hero MotoCorp’s commuter bikes. But there’s a catch: the council might define “luxury” two-wheelers as those with engine sizes over 350cc, which would bring a 40% GST on bikes from big names like Bajaj and Royal Enfield. These companies are reportedly pushing back against this move.

Here’s a quick summary of what the GST reforms could look like:

Simplified tax slabs: from four to two main rates—5% for essentials and 18% for non-essentials—plus 40% for luxury/sin goods.

Easier compliance and administration, reducing confusion and litigation.

The higher 40% tax on luxury items should balance out revenue losses from lower rates.

Compensation plans might use the current cess surplus to support states, with a phaseout planned by October 31.

The council is also looking to fix issues like inverted duty structures, where input services are taxed higher than outputs.

The reforms come at a critical time, as the Indian economy faces challenges from the 50% US tariffs imposed recently on Indian goods, especially due to India’s continued purchase of Russian oil. Prime Minister Modi announced this major GST overhaul during his Independence Day speech on August 15, aiming to ease the tax burden and boost the economy.

According to SBI Research, the GST reforms could add about 0.6 percentage points to India’s GDP growth over the next year, helping to offset the negative impact of US tariffs, which might reduce growth by up to 1 percentage point. So, the reforms could cushion nearly half—or more—of the tariff-related slowdown.

SBI expects the average GST rate to drop to around 9.5%, which would also ease retail inflation slightly and boost consumer spending, potentially increasing GST collections in the long run.