In a landmark move, Finance Minister Nirmala Sitharaman announced a major reshaping of India’s Goods and Services Tax (GST) structure—largely dubbed “GST 2.0”—just in time for the festive season.
A Bold Leap Towards a Simpler, Fairer GST
This move reshapes India’s taxation landscape as the Modi government has announced a sweeping overhaul of the Goods and Services Tax (GST). By collapsing the multiple slabs into just two—5% and 18%—and slashing rates on essentials, healthcare, education, and even daily-use products, this reform marks one of the most significant tax policy shifts since GST’s introduction in 2017.
Touted as a “massive Diwali gift” for citizens, the new GST structure is more than a festive gesture—it is a decisive step towards simplifying compliance, reducing household burden, and fueling consumption-driven growth.
With this, India takes a giant leap toward creating a transparent, citizen-friendly, and globally competitive economy.
1. Review of Last Year’s Context (2024)
Until now, India’s GST system operated under a multi-slab structure of 0%, 5%, 12%, 18%, and 28%, which was often criticized for being complex and burdensome for both businesses and consumers.
- 0% slab → Essential food items like fresh vegetables, fruits, and basic education/health services.
- 5% slab → Mass-consumption goods like packed food, footwear under ₹1,000, economy class air travel.
- 12% slab → Processed foods, mobile phones, certain medicines.
- 18% slab → Services, daily use items like soaps, shampoos, toothpaste, and most industrial products.
- 28% slab → Luxury and sin goods like high-end cars, air conditioners, washing machines, tobacco, etc.
This structure, while aimed at balancing revenue with affordability, often led to confusion, classification disputes, and higher compliance burden.
Industry leaders and economists repeatedly called for rationalization into fewer slabs to simplify India’s indirect tax regime and boost consumption.
This reform is a significant leap beyond past moderate adjustments, offering a more comprehensive overhaul aimed at simplifying the tax regime and increasing affordability across the board.
2. Breaking Down the New GST Slabs & Key Changes
2.1. Simplified Slab Structure
- 5% “Merit Rate”: Covers most daily use and essential goods.
- 18% “Standard Rate”: Applies to mid-level products such as electronics.
- 40% “Sin and Luxury Rate”: Targets premium, demerit, and luxury items.
2.2. What Gets Cheaper — Category Highlights
Category | Price Slab | Impact |
|---|---|---|
Insurance | 18% → 0% | Individual life & health insurance now tax-free. |
Daily Essentials | 12–18% → 5% | Items like toothpaste, soaps, hair oils, and toiletries cheaper. |
Education Supplies | 12% → 0% | Books, maps, pencils, notebooks now GST-exempt. |
Electronics / Appliances | 28% → 18% | ACs, TVs, refrigerators, projectors now taxed at lower rate. |
Agri Equipment | 12–18% → 5% | Tractors, inputs now more affordable for rural markets |
Food & Beverages | 12–18% → 5% or 0% | Items like milk products, namkeen, noodles, breads cheaper or tax-free. |
Medications & Health Devices | 28% → 18%; EVs at 5%; Premium at 40% | Reduction for small cars; EV support continued; luxury taxed high. |
Construction / Cement | 28% → 18% | Building materials become cheaper. |
- Category: Insurance
- Rates Change: 18% → 0%
- Impact: Individual life & health insurance now tax-free.
- Category: Daily Essentials
- Rates Change: 12% → 18%
- Impact: Items like toothpaste, soaps, hair oils, and toiletries cheaper.
- Category: Educationsl Supplies
- Rates Change: 12% → 0%
- Impact: Books, maps, pencils, notebooks now GST-exempt.
- Category: Electronics/Appliances
- Rates Change: 28% → 18%
- Impact: ACs, TVs, refrigerators, projectors now taxed at lower rate.
- Category: Agri Equipment
- Rates Change: 12%-18% →5%
- Impact: Tractors, inputs now more affordable for rural markets.
- Category: Food and Beverages
- Rates Change: 12%-18% →5% or 0%
- Impact: Items like milk products, namkeen, noodles, breads cheaper or tax-free.
- Category: Medications & Health Devices
- Rates Change: 12%-18% →5% or 0%
- Impact: Includes life-saving drugs, medical apparatus, diagnostic kits
- Category: Automobiles
- Rates Change: 28% → 18%; EVs at 5%; Premium at 40%
- Impact: Reduction for small cars; EV support continued; luxury taxed high.
- Category: Construction / Cement
- Rates Change: 28% → 18%
- Impact: Building materials become cheaper.
2.3. Economic Rationale
- Boosting Consumption: Festive-oriented relief expected to lift spending
- Inflation Control: Could lower inflation by up to 1.1 percentage points.
- Revenue Impact: Estimated combined revenue hit of around ₹48,000 crore, but likely offset by consumption surge.
- Market Response: Shares of FMCG, auto, and electronics firms reacted positively to the announcement.
2.4. Holistic Support Beyond Tax Cuts
2.5. Eligibility & Scope
3. Application Process
No application is required. These changes are law-based reforms enacted by the GST Council and effective automatically from 22 September 2025.
4. Evaluations: How Impact Will Be Assessed
- Consumer Savings: Lower tax incidence directly benefits households.
- Spending Growth: Driven by affordability during festive seasons.
- Sector Bounce: FMCG, auto, electronics, healthcare expected to benefit.
- Revenue Recovery: Consumption boost may compensate for shortfalls.
- Ease & Compliance: Simplified structure eases administrative burden.
5. FAQ's
6. GST 2.0: A Simplified Tax Regime and A Foundation for Lasting Reform for a Stronger India
The GST reform of September 2025 marks a historic shift in India’s indirect taxation—from a multi-slab, often confusing system to a streamlined two-slab structure of 5% and 18%.
By lowering the burden on essential goods, healthcare, and education, while rationalizing taxes on electronics and daily-use products, the Modi government has not only offered relief to households but also set the stage for higher consumption, stronger compliance, and faster economic growth.
As the nation heads into the festive season with this “Diwali gift,” the reform stands as more than just a tax cut—it is a bold step toward making India’s economy more inclusive, competitive, and future-ready.
The true success of this shift, however, will lie in its implementation, compliance ease, and the ability to balance revenue needs with consumer relief.
Article Contribution by: Sapna Garg
