GST Rate Cuts: India Moves to a Two-Slab Structure from September 22

The GST Council, chaired by Finance Minister Nirmala Sitharaman, has approved a major restructuring of the Goods and Services Tax (GST). Starting September 22, 2025, India will shift from four primary tax slabs (5%, 12%, 18%, and 28%) to a simplified two-slab structure of 5% and 18%, along with a new 40% slab for sin and luxury goods.

This is being hailed as the biggest GST reform since its rollout in 2017.

Key Highlights of the New GST Structure

Effective Date: September 22, 2025 (beginning of Navratri).

Two Main Slabs: 5% and 18% (earlier 4 slabs).

Zero GST on Essentials: Basic foods and educational supplies.

New 40% Slab: For tobacco, sugary drinks, luxury vehicles, and other demerit goods.

What Gets Cheaper?

Many items of daily use and mass consumption have seen major tax cuts:

0% GST (Tax-Free):

UHT milk, packaged paneer, chapati, roti, paratha

Life-saving drugs, insurance (life & health policies), basic educational materials

5% GST (Earlier 12–18%):

Hair oil, soaps, shampoos, toothpaste, toothbrushes

Bicycles, kitchenware, tableware, household goods

Butter, ghee, cheese, namkeens, baby products

18% GST (Earlier 28%):

Small cars (petrol ≤1200 cc, diesel ≤1500 cc, length ≤4m)

Motorcycles (≤350 cc)

Air-conditioners, refrigerators, TVs, dishwashers, washing machines

Cement and auto parts

This overhaul makes 90% of goods cheaper, providing direct relief to households.

What Gets Costlier? The New 40% Sin & Luxury Slab

To discourage harmful consumption and tax high-end lifestyles, a 40% GST will apply on:

Tobacco products: cigarettes, bidi, gutkha, pan masala

Sugary & caffeinated aerated drinks

Luxury vehicles: large cars, high-capacity motorcycles, yachts, personal aircraft

Firearms, gambling, and lotteries

Impact on Insurance and Healthcare

Insurance Relief: All life and health insurance policies are now fully GST-free, improving affordability for individuals and families.

Healthcare Boost: Life-saving drugs, cancer medicines, diagnostic tools, and medical supplies are either 0% or 5%, ensuring reduced costs for patients.

Economic and Social Impact

Consumer Benefits: Prices of essentials, FMCG goods, vehicles, and electronics will drop, helping ease household budgets.

Festive Season Stimulus: With lower rates on appliances and autos, demand is expected to surge ahead of Diwali.

Simplification of Compliance: Businesses will find it easier to classify and pay taxes, reducing litigation and disputes.

Revenue Management: The government expects a manageable shortfall (~₹48,000 crore), much lower than earlier projections, indicating confidence in compliance gains.

Public Health Strategy: Higher tax on tobacco and sugary drinks discourages unhealthy consumption.

Industry & Expert Reactions

Business Leaders welcomed the move as a “Diwali gift” for consumers and a boost for domestic demand.

Economists predict positive effects on GDP growth, inflation control, and investment sentiment.

PM Modi termed it a “Next-Gen GST Reform”, focused on transparency and citizen welfare.

Conclusion

The new GST reform represents a balance between affordability, simplicity, and responsible taxation. While consumers enjoy relief on essentials and daily-use goods, luxury and harmful items are taxed higher. By cutting rates on over 90% of goods, the government aims to boost demand, simplify compliance, and strengthen the economy just ahead of the festive season.

This GST 2.0 marks a historic shift in India’s indirect tax regime—making it more transparent, consumer-friendly, and growth-oriented.