Following Prime Minister Narendra Modi's announcement of a GST rate cut this Diwali, the Union government has proposed a two  rate GST structure comprising standard rates of 5% and 18%, thereby doing away with the 28% and 12% GST rates, said sources.

A special slab of less than 5% will continue in the GST tax structure to promote employment generating sectors, while a 40% slab has been proposed, comprising only five to seven sin goods.

"Since there are only two slabs, a majority of items will be moved to the two," a source said.

"Current slabs of 28% and 12% are proposed to be scrapped. 99% of items in the 12% slab proposed are to be moved to the 5% rate," the sources pointed out.

"A majority of items related to the common man like foods items, and daily use items are proposed to be kept under the 5% slab," the sources said.

"90% of the items in the 28% slab are proposed to be moved to 18%," the sources added. 

The proposals also include a new slab of 40%  for sin goods like tobacco and pan masala, the sources said, adding that this slab will only contain five to seven items.

It may be noted that consumer durables, currently under the 28% slab, are proposed to be shifted to 18%.

The proposals have been sent to the GoMs on rate rationalisation, and will be shortly sent to the GST Council. The GST Council meeting is likely to be held either next month or in October.

Apart from the rates, the Centre's proposal includes structural and compliance reforms under GST.  Under the structural reforms, the Centre has proposed to correct the inverted duty structure (IDS), and address classification issues.

Addressing IDS is likely to benefit sectors like textiles and fertiliser. The Centre's proposals also include making returns filing seamless via pre-filled returns and processing of refunds within three days in 95% of the cases.