The Goods and Services Tax (GST) in India has undergone a historic reform in September 2025. The GST Council, led by Finance Minister Nirmala Sitharaman, has simplified the tax structure by reducing multiple slabs into a streamlined two-tier system. This landmark decision, effective from 22 September 2025, aims to boost consumption, reduce compliance complexities, and deliver direct benefits to consumers and businesses alike. In this article, we explain the new GST structure, its impact on key sectors, and what it means for the Indian economy.

Overview of the New GST System

Earlier, GST was levied in four major slabs: 5%, 12%, 18%, and 28%. The Council has now simplified this into two major rates along with a special category for luxury and sin goods:

• 5% – Merit rate applied to essential goods and everyday consumables
• 18% – Standard rate applied to most goods and services
• 40% – Special rate for sin and luxury goods such as tobacco, alcohol, aerated drinks, luxury vehicles, yachts, and personal aircraft
• 0% – Zero GST on essential food products and life-saving medicines

Effective Date of Implementation

The revised GST rates will come into effect from 22 September 2025, coinciding with the start of Navratri. This timing was carefully chosen to give businesses time to adjust and to encourage festive consumption in the domestic market.

Items Under Zero GST

One of the most consumer-friendly aspects of the reform is the expansion of the zero-rated list. Items exempt from GST now include:

• Ultra High Temperature (UHT) milk
• Paneer, roti, and paratha
• Essential life-saving drugs, including anti-cancer medicines
• Basic food items consumed daily by households

This move will lower household expenses and make healthcare more affordable.

Key Rate Reductions

Several essential and widely used goods have seen a sharp reduction in GST rates. The government expects this to directly benefit middle-class households and boost consumption:

• Hair oil, shampoo, toothpaste, soap – reduced from 18% to 5%
• Butter, ghee, namkeen, sauces, chocolates – reduced from 12–18% to 5%
• Televisions above 32 inches, air conditioners, small cars, motorbikes under 350cc, dishwashers – reduced from 28% to 18%
• Cement – reduced from 28% to 18%
• Life and health insurance premiums – reduced from 12% to 0%

40% Slab for Sin and Luxury Goods

To balance revenue losses from reduced tax on essentials, the Council has introduced a 40% slab for goods considered non-essential, luxury, or harmful. These include:

• Cigarettes, gutkha, and pan masala
• Aerated drinks with added sugar
• Fast cars and bikes with engine capacity above 350cc
• Luxury yachts and private aircraft
• Casinos and gambling-related services

However, tobacco products will continue under the existing GST + cess structure until compensation-related dues are cleared.

Impact on Consumers

The reform is expected to significantly ease the burden on households. Everyday items such as cooking oil, dairy products, soaps, and packaged foods will become cheaper. Healthcare and insurance will also become more affordable due to the zero-GST move. For middle-class families, reduced rates on consumer appliances and vehicles could encourage higher spending during the festive season.

Impact on Businesses

Businesses, particularly in FMCG, automotive, and construction, stand to gain from lower GST rates:

• FMCG Sector: Lower tax on soaps, shampoos, and packaged foods will likely increase demand.
• Automotive Sector: Cars, bikes, and spare parts becoming cheaper will revive sales in a sector struggling with demand.
• Real Estate and Construction: Cement rate cut to 18% could reduce building costs, helping both developers and home buyers.
• Insurance & Healthcare: Zero GST on health and life insurance premiums makes policies more attractive.

Macroeconomic Benefits

The GST reform is aimed at simplifying taxation, boosting consumption, and making India a more attractive investment destination. Lower rates on essential and mid-range goods are expected to increase demand, while higher rates on luxury items balance revenue generation. Economists predict a positive impact on GDP growth in the coming quarters as consumer spending rises.

What to Watch Next

While the reform is a big step forward, the GST Council will continue to monitor its impact on state revenues and inflation. Businesses should watch for:

• Transition guidelines and compliance rules
• Impact on state compensation cess collections
• Further adjustments to the 40% slab, depending on consumption trends
• Effect on fiscal deficit and government borrowing

Conclusion

The New GST 2025 marks one of the biggest overhauls in India’s indirect tax system since its introduction in 2017. By reducing the number of slabs, expanding zero-GST coverage, and simplifying compliance, the government aims to stimulate demand and make essentials more affordable. While luxury items face a steeper tax, the average Indian consumer stands to gain significantly from this reform.