Introduction
On September 4, 2025, India’s GST Council unveiled the most comprehensive overhaul of indirect taxation since the GST’s inception. The previous complex four-slab structure has been simplified into two main tax rates—5% and 18%, alongside a 40% alternative for luxury and sin goods. These updates take effect from September 22, 2025, aligning with the start of Navratri.
Why Bharat Implemented GST “2.0”
The reform addresses persistent complexities in GST application and aims to:
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Ease compliance for businesses and reduce consumer confusion
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Lower tax burdens on essential goods
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Stimulate demand and consumption ahead of key festive seasons—especially Navratri and Diwali .
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Focus taxes on non-essential, luxury segments to balance revenue India BriefingThe Times of India.
Old vs New GST Rates in India (2025)
| Category / Item | Old GST Rate (Before Sep 22, 2025) | New GST Rate (Effective Sep 22, 2025) |
|---|---|---|
| Food & Daily Essentials | ||
| Fresh milk, vegetables, cereals | 0% | 0% |
| Packaged food (biscuits, cereals, paneer, roti) | 12% / 18% | 5% |
| Edible oil, ghee, butter | 12% | 5% |
| Tea, coffee (except instant) | 5% | 5% (unchanged) |
| Packaged paneer, curd | 12% | 0% |
| Household / FMCG | ||
| Soap, shampoo, toothpaste | 18% | 5% |
| Detergents | 18% | 5% |
| Sanitary napkins | 12% | 5% |
| Bicycles | 12% | 5% |
| Stationery (pens, notebooks) | 18% | 5% |
| Footwear (<₹1000) | 12% | 5% |
| Footwear (>₹1000) | 18% | 18% |
| Appliances & Electronics | ||
| Small TVs (<32 inch) | 28% | 18% |
| Large TVs & luxury electronics | 28% | 18% |
| Air conditioners & refrigerators | 28% | 18% |
| Washing machines | 28% | 18% |
| Mobiles | 12% | 18% |
| Laptops | 18% | 18% |
| Automobiles | ||
| Small cars (engine <1200cc) | 28% + cess | 18% |
| Mid-range cars (sedans, SUVs <1500cc) | 28% + cess | 18% |
| Luxury cars, big SUVs | 28% + cess | 40% |
| Motorcycles (>350cc) | 28% + cess | 40% |
| Electric vehicles (EVs) | 5% | 5% |
| Travel & Services | ||
| Economy air travel | 5% | 5% |
| Business class travel | 12% | 18% |
| Railways (AC tickets) | 12% | 5% |
| Movie tickets (<₹100) | 12% | 5% |
| Movie tickets (>₹100) | 18% | 18% |
| Life & health insurance | 18% | 0% / 5% |
| Education services | Exempt | Exempt |
| Hotel tariff (<₹7500) | 12% | 18% |
| Hotel tariff (>₹7500) | 18% | 18% |
| Luxury & Sin Goods | ||
| Cigarettes, tobacco | 28% + cess | 40% |
| Alcohol (outside GST, state tax applies) | NA | NA |
| Aerated & energy drinks | 28% | 40% |
| Luxury watches, jewellery | 28% | 40% |
| Gambling, betting, casinos | 28% | 40% |
Summary
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0% slab: Still covers essentials (fresh food, milk, vegetables, medicines).
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5% slab: Widely expanded to include daily essentials, soaps, packaged food, bicycles, basic insurance, sanitary products.
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18% slab: Covers electronics, mid-segment cars, most services, hotels, mobiles.
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40% slab (NEW): Luxury & sin goods like big cars, SUVs, tobacco, luxury watches, energy drinks.
This is the simplest GST structure since 2017—from 5 slabs down to just 2 main slabs + 40% luxury category.
What Becomes Cheaper
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Daily essentials & toiletries (e.g., soap, shampoo, bicycles) drop to 5%, down from 12–18%.
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Food items like paneer, roti, and milk move to 0%; packaged foods (biscuits, cereals) reduce to 5% .
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Healthcare & insurance: Most life-saving drugs and insurance become 5% or 0% .
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Appliances and autos: ACs, TVs, smaller cars, and low-engine vehicles shift to 18% from 28% .
What Becomes Costlier
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A new 40% slab is introduced for high-end luxury goods—e.g., big cars, tobacco, certain beverages, and sin goods .
Sector-wise Impacts
FMCG & Daily Essentials
Companies like Hindustan Unilever and Nestlé benefit from reduced taxes on products, boosting affordability .
Automobiles, Electronics & Household
Gamers of mid-range cars, televisions, home appliances benefit from lower pricing directly tied to the new slabs .
Travel, Insurance & Services
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Life and health insurance move to 0%
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Economy air tickets remain 5%; premium fares move to 18% .
Luxury & “Sin” Goods
High-tax targets like premium vehicles and tobacco now fall under the highest GST slab to discourage consumption.
Implications for Consumers, Businesses & the Economy
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Consumers enjoy immediate cost relief on essentials.
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Businesses face simplified compliance but higher tax on select goods.
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Economy sees potential inflation reduction and boosted festive consumption .
Tips to Adapt to the New GST Structure
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Pre-purchase anticipated items before September 22 for savings.
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Bulk-buy essential household goods now taxed at lower GST.
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Reassess pricing or inventory strategy if you’re in retail or manufacturing.
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Ensure invoice accuracy as the same GST code may now mean a different rate.
FAQs
Q1: When do the new GST rates become effective?
From September 22, 2025, coinciding with Navratri .
Q2: What are the new GST slabs in India?
New two-tier slabs: 5% and 18%, with 0% for essentials and 40% for selected luxury/sin goods.
Q3: Which items have become cheaper?
Toiletries, consumer electronics, small vehicles, packaged foods, and insurance all see reduced GST rates .
Q4: What items now attract 40% GST?
High-end cars, premium bikes, luxury goods, and “sin” products like tobacco fall under the new 40% tax slab .
Conclusion
India’s GST reform on September 22, 2025, ushers in a simplified and more consumer-friendly tax era. While everyday essentials become more affordable, luxury and sin goods face steeper taxes. For consumers, businesses, and the broader economy, this “GST 2.0” marks a transformative recalibration of India’s indirect tax architecture.
