This is part of a sweeping reform that the government has announced. Goods and Services Tax (GST) rates in India have been radically simplified and reduced to only the two main rates of 5% and 18 percent and will be in force on September 22, 2025. This new generation GST reform will lead to a simplified life of consumers, businesses and traders and will realise the dream of the citizens of ease of living and ease of doing business.
A New Era of Simplified Taxation
The former GST regime consisted of four broad tax slabs of 5 per cent, 12 per cent, 18 per cent, and 28 per cent, with the extra cess on luxury and sin goods. This complex structure, over the years, has at times left small traders and consumers bewildered and grappling with compliance and different prices on daily goods. This has now been rationalised by the government to only two main slabs, 5 and 18 per cent, with a new high 40 per cent slab on luxury and sin goods.
- The 5 per cent slab will include day-to-day needs and domestic items.
- Most goods and services, including aspirational products, fall within the 18% slab.
- The 40 per cent slab focuses on sin and luxury items like big cars and tobacco.
This rationalisation is aimed at relieving the ordinary man and increasing economic consumption alongside proper management of revenues by the government.
Detailed Breakdown: What’s Changed?
Key Benefits for Consumers and Farmers
- Zero GST is on food and basic commodities such as unbranded grains, milk, paneer and bread.
- Toiletries and everyday items such as hair oil, soaps, shampoos, toothpaste, are now taxed at 5 per cent as opposed to 12 per cent to 18 per cent previously.
- The GST on agricultural instruments is reduced to 5% in place of 12 per cent, benefiting farmers.
- A lot of life-saving medicine, such as anti-cancer medicine and medical equipment such as thermometers and glucometers, have been exempted and as such, are tax-free or at reduced rates.
- The tax rate on education materials like exercise books, pencils, crayons, etc. is lowered by 12 to 5% and hence learning has been made cheaper.
Impact on Aspirational and Luxury Goods
- Small cars (petrol vehicles up to 1200cc and diesel up to 1500cc) are now in the 18% slab, down from 28%, easing the price burden on middle-class buyers.
- Consumer electronics like televisions, air conditioners, and motorbikes under 350cc are also taxed at 18% instead of the higher previous slabs.
- The 40% slab is being introduced to cover sin goods including tobacco products, carbonated beverages, midsize and large vehicles, and big bikes above 350cc, replacing the previous system of cess plus 28% tax.
Comparing Old and New GST Structures
| GST Slab | Items Included (Old) | Items Included (New) | Notes |
| 0% | Essentials like fresh vegetables, unbranded grains | Same, plus additional exempted medicines | No change |
| 5% | Basic food items, small daily goods | Toiletries (hair oil, shampoo, toothpaste), agricultural implements, stationery | Slab widened to many essentials |
| 12% | Mid-tier goods, medicines, and agricultural goods | Merged mostly into 5% slab | 12% slab eliminated |
| 18% | Services, some consumer goods | Most goods and services, including small cars | Expanded, merging old 12% and 18% slabs |
| 28% | Luxury goods, consumer durable goods | Mostly merged into 18%, except for luxury/sin goods | Items mostly moved to the 18% or 40% slab |
| 40% (New) | N/A | Sin goods (tobacco, big vehicles, carbonated drinks) | New slab introduced |
This simplification reduces confusion, streamlines tax compliance, and helps bring down the prices of many everyday items for Indian households.
Who Gains and Who Faces Challenges?
Winners: Consumers, Farmers, and Small Businesses
- Improved GST on necessities and household items will be directly passed on to the common consumer.
- The farmers and the agriculture industry benefit from the lower GST on farm implements.
- The simplified slab structure will be much simpler to operate for small traders and MSMEs, with less paperwork and compliance hassles.
- Small cars will become affordable to middle-class car buyers.
- No tax shall favour healthcare users who get access to necessary drugs and medical equipment.
Those Facing Increased Costs or Adjustments
- The new 40 per cent slab will make luxury and sin goods such as big cars, tobacco and aerated drinks more expensive to consumers.
- Other states might fear losing revenue of about ₹48,000 crore in the form of reduced GST on most products.
- Other manufacturers whose products fell from 12 per cent to 5 per cent could face pressure on profit margins without equivalent input cost cuts.
The Bigger Picture: Why This GST Reform Matters
Since its introduction in 2017, GST has been described as the largest tax system in India, and it strives to harmonise the Indian indirect tax system. However, as time went on, the various slabs made compliance complicated, prices uneven and baffled small traders and daily consumers who are mostly taxpayers. Multiple rates and a quarterly filing system made GST cumbersome and disheartening to trade with at times.
The purpose of this rationalised GST structure is now to:
Simplify and make tax compliance easier and more transparent to businesses of all sizes.
- Lower the living standard by lowering taxes on daily necessities.
- underpin the PM’s vision of a common man-friendly taxation system;
- Increase aggregate demand by placing increased disposable income into the hands of individuals.
What to Expect Going Forward?
The reform officially rolls out on September 22, 2025. The government will closely monitor its effects and fine-tune policies if needed to balance business interests with consumer benefits and state revenues.
In sum, the new GST structure represents a significant shift towards simplicity and fairness, providing a concrete tax relief to millions of Indians while ensuring luxury and sin goods bear a heavier tax burden. The move marks a new chapter in India’s ongoing economic reforms, reinforcing the goals of inclusive growth and ease of business.
FAQ ( Frequently Asked Questions )
The new GST rates will start from September 22, 2025. From this date, the new rates will apply to most goods and services.
The GST rates have been simplified. Some tax rates, like 12% and 28% have been removed. Most goods now fall under 5%, 18%, or a special 40% rate for certain products like luxury or sin goods.
Milk and bread are now taxed at a lower GST rate to reduce the cost for consumers. This helps make basic food items cheaper.
If a business took payment before September 22 for a product or service, the old GST rate applies. Payments made after this date will have the new GST rates.
Bikes with engines around 350 cc generally attract GST at 28%, which is the higher tax slab for luxury and higher-engine-capacity vehicles.
No, the minimum turnover limit to register for GST remains the same. Businesses need to follow the existing registration rules.
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