New GST Rates in India: Key Changes You Must Know

The Goods and Services Tax (GST) has been India’s biggest tax reform since independence, streamlining multiple indirect taxes into a single system. However, over the years, the complex slab structure has often been criticized for being cumbersome. To address this, the 56th GST Council meeting has approved a major overhaul of GST rates—popularly being called GST 2.0.

These changes, officially notified on the CBIC and PIB websites, will come into effect from September 22, 2025 (except for tobacco and related products, where decisions are pending). Let’s break down the new structure, what gets cheaper, what may cost more and what this means for you.

Simplified GST Slabs

Earlier, GST had four main slabs—5%, 12%, 18%, and 28%—plus a compensation cess on certain goods. Now, the government has streamlined it into two categories plus one special slab:

• 5% → For essential goods and services
• 18% → For most standard goods and services
• 40% (Special De-merit Slab) → For luxury and sin goods (tobacco, pan masala, aerated beverages, casinos, betting, high-end vehicles, motorcycles above 350cc, etc.)

This simplification makes compliance easier for businesses and reduces consumer confusion.

What’s Cheaper Now?

1. Everyday Essentials

• Hair oil, soaps, shampoos, toothpaste, bicycles, kitchenware, instant noodles, pasta, chocolates, sauces, butter, coffee and snacks – now at 5%.
• UHT milk, paneer, chhena and Indian breads – nil-rated (0%).

2. Medicines & Healthcare

• Most medicines are now taxed at 5%.
• Life-saving cancer drugs, rare-disease treatments and critical medical products – nil-rated.
• Medical devices and instruments – 5%.

3. Insurance Policies

• All individual life and health insurance policies are now exempt (0%), offering direct relief to middle-class families.

4. Automobiles & Appliances

• Small cars, motorcycles (up to 350cc), three-wheelers, buses, trucks, ambulances and auto parts – reduced from 28% → 18%.
• Electric vehicles remain at 5%, showing the government’s continued support for green mobility.
• Luxury vehicles and motorcycles above 350cc are shifted to the 40% slab.
• TVs, air conditioners, refrigerators, washing machines and dishwashers – reduced from 28% → 18%.

5. Agriculture Sector

• Tractors, agricultural machinery, bio-pesticides and natural menthol – now at 5% instead of 12%.

6. Services for Consumers

• Salons, beauty parlours, gyms, fitness centres and yoga services – taxed at 5% (without input tax credit).
• This brings down costs for urban households while widening GST coverage.

What’s Costlier?

The newly introduced 40% de-merit slab applies to:

• Tobacco and related products (cigarettes, gutkha, pan masala, bidi, zarda) – implementation deferred until cess obligations are cleared.
• Aerated beverages.
• Casinos, online betting and lotteries.
• Motorcycles above 350cc and select high-end luxury vehicles.

Additionally:

• Coal now attracts 18% GST (earlier 5% + cess merged), which could impact power and industrial costs.

Implementation Timeline

• Effective Date: September 22, 2025 (for most goods and services).
• Tobacco and related goods: Existing rates continue until cess liabilities are fully discharged.
• Input Tax Credit (ITC): Credits already availed remain valid. Some reversals may be required for supplies after September 22, as per CGST rules.
• E-way Bills: No fresh e-way bills needed if goods are already in transit.

Why This Reform Matters

1. Simplification: Reducing slabs to just two (plus a special de-merit slab) means easier compliance for businesses and less confusion for consumers.
2. Consumer Relief: Essentials, medicines, insurance, EVs and appliances all get cheaper.
3. Boost to Demand: With lower taxes on cars, white goods, services, and daily-use items, demand is expected to rise—especially ahead of the festive season.
4. Support for Green Growth: Continued 5% GST on EVs underlines India’s push for sustainability.
5. Balanced Revenue: While the government may face a revenue loss of about ₹48,000 crore, it is expected to gain from higher consumption and a broader tax base.
6. PIB Statement: The government’s official stance is that this reform aims to “simplify, rationalise and make GST more pro-consumer and pro-business.”

Quick Snapshot

Conclusion

For individuals, this means cheaper daily essentials, healthcare, insurance, and services. For businesses, it means less compliance complexity and a predictable tax environment. And for the economy, it means stronger demand and growth momentum.

As the reforms roll out from September 22, 2025, both consumers and businesses should keep an eye on official CBIC notifications and PIB updates for detailed product-wise clarifications.