The Goods and Services Tax (GST) Council has approved a sweeping overhaul of India’s indirect tax regime, marking the most significant reform since GST was rolled out in 2017. The Council has decided to reduce the current four-rate structure of 5%, 12%, 18% and 28% into a simplified two-rate system of 5% and 18%. In addition, a special 40% slab has been introduced for select luxury and sin goods such as high-end vehicles, tobacco, carbonated beverages and gambling services. The revised rates will come into effect from September 22, 2025.
This restructuring is expected to ease compliance for businesses, reduce litigation arising from multiple slabs, and give a boost to household consumption by lowering taxes on daily-use items, food products, healthcare and insurance. At the same time, the higher 40% slab on luxury and discretionary spending items is designed to protect government revenues.
What Gets Cheaper
Food and beverages: Chapati, paranthas, UHT milk, paneer, khakra and pizza bread will now attract nil GST, down from 5%. Essential packaged food items such as butter, ghee, dry fruits, confectionery, jams, fruit juices, ice creams, pastries, biscuits, corn flakes and cereals will move to the 5% slab from 18%. Plant-based and soya milk drinks have been brought down to 5% from 18% and 12% respectively, while other fats and cheese will now be taxed at 5% instead of 12%.
Household and personal care: Products such as toothpaste, shampoo, soap, talcum powder and hair oil will now attract only 5% GST, compared to the earlier 18%. Common household items including utensils, feeding bottles, bicycles, bamboo furniture, combs and umbrellas will be taxed at 5% instead of 12%.
Electronics and appliances: Consumer appliances like televisions, air-conditioners and dishwashers have seen their GST rate reduced from 28% to 18%, making them more affordable for middle-class households.
Stationery: Items such as notebooks, charts, pencils, crayons, pastels and globes will now be exempt from GST, down from 12%. Erasers too have moved to nil tax from the earlier 5%.
Textiles and footwear: Mass-market textiles and footwear, previously taxed at 12%, will now attract only 5%, bringing relief to the retail sector and consumers alike.
Healthcare: Life-saving drugs, diagnostic kits, medical-grade oxygen, thermometers, glucometers and corrective spectacles will now be taxed at 5% or exempted completely, compared to the earlier 12%–18% slabs. Individual life and health insurance policies will now be GST-free, making healthcare access more affordable.
Travel and hospitality: Economy-class flight tickets will now attract just 5% GST. Hotel rooms priced up to ₹7,500 per night will also be taxed at 5%, down from 12%.
Vehicles and auto components: Motorcycles up to 350cc, small hybrid cars, electric vehicles and auto components will now attract 18% GST instead of 28%. Certain categories of petrol and diesel cars within specified size and engine capacity limits will also move to the 18% bracket.
Construction materials: Cement, a critical input in infrastructure and housing, will now attract 18% GST compared to the earlier 28%, a move expected to reduce construction costs.
Agricultural equipment and inputs: A wide range of agricultural machinery, from tractors and pumps to harvesting machines, sprinklers and composting machines, will be taxed at 5% instead of 12%. Fertilisers and biopesticides will also see their rates slashed to 5% from 18% and 12%. This will provide significant relief to farmers and the agriculture sector.
Beauty and wellness services: Services such as salons, spas, gyms, yoga centres and fitness clubs will now attract just 5% GST, down sharply from 18%.
What Gets Costlier
Aerated and caffeinated beverages: Popular soft drinks, energy drinks and flavoured beverages will now be taxed at 40%, compared to the earlier 18%–28% range. All sugar-added or sweetened beverages will fall under this highest slab.
Vehicles: Automobiles with engines larger than 1,200cc or lengths exceeding 4,000mm, high-end motorcycles above 350cc, racing cars, yachts and personal-use aircraft will be taxed at 40%.
Tobacco products: Cigarettes, gutkha, bidi and other tobacco products will continue under the 28% GST plus compensation cess until pending revenue recovery is complete, after which they will move to the 40% slab.
Leisure and gambling: Casinos, horse racing, online gaming, lotteries and even IPL tickets will now fall under the 40% GST rate.
Economic Impact
The shift to a simpler two-slab GST structure is expected to streamline compliance, reduce disputes and create a more predictable tax environment for businesses. By lowering the rates on daily-use goods, food, healthcare and housing materials, the government hopes to stimulate consumer demand and boost economic activity. The introduction of a higher slab for luxury and sin goods is aimed at balancing revenue collections while promoting equitable taxation.
Economists see this reform as a step towards stabilising GST as a robust consumption tax regime that not only supports growth but also protects government finances. For households, the changes promise cheaper essentials and services, while luxury consumers and high-spending segments will bear higher tax burdens.
This revamp signals a major milestone in India’s journey towards a simpler, growth-friendly and progressive tax system.
Prasanta Patnaik