New Delhi:
The Goods and Services Tax (GST) Council has announced a sweeping reform of the indirect tax structure, reducing the number of slabs and bringing major relief to consumers. Starting 22 September 2025, GST will apply under four simplified categories: 0%, 5%, 18% and 40%. The earlier 12% and 28% slabs have been removed.
Essentials exempted from GST
A wide range of essential goods and services have been placed in the 0% tax category. These include life-saving medicines for cancer and rare diseases, life and health insurance policies, as well as basic education items such as maps, notebooks, pencils and crayons. Food items such as paneer, roti, chapati and UHT milk will also not attract GST.
By exempting these categories, the government aims to ease the financial burden on households and ensure essential healthcare and education services remain affordable.
Lower tax for daily-use items
The 5% slab has been reserved for daily-use and household products. Personal care items such as soap, shampoo, hair oil, toothpaste and toothbrushes will be taxed at 5%. Staple foods like butter, ghee, cheese, biscuits, noodles and chocolates also fall in this category.
Healthcare products including thermometers, oxygen, diagnostic kits and spectacles have also been placed under 5%, alongside agricultural equipment like tractors, irrigation systems and bio-pesticides. Hotel stays costing up to ₹7,500 per night and economy-class flights will attract only 5% tax.
Standard rate for consumer durables
The 18% category has been fixed for consumer durables and mobility-related products. This includes air conditioners, televisions, dishwashers, monitors and projectors. Automobiles such as motorcycles up to 350 cc, small cars, three-wheelers, buses, trucks and ambulances also fall under this slab. Cement, construction materials and auto parts will now attract a uniform 18% GST, ending earlier disparities.
Heavy tax on luxury and sin goods
The government has introduced a 40% slab for luxury and sin goods. Tobacco products including cigarettes, cigars, gutka and pan masala, along with aerated sugary drinks and caffeinated beverages, will be taxed at this rate. High-end vehicles, personal aircraft, yachts, racing cars, casinos, betting and lotteries also come under this highest slab.
This move is intended to curb consumption of harmful products while ensuring that luxury items contribute significantly to revenue.
Economic and political impact
Economists estimate that the tax changes could reduce retail inflation by 0.5 to 1 percentage point, depending on how quickly businesses pass on the benefits. Consumer companies such as textile and apparel brands have already announced price cuts in anticipation of higher demand.
The reforms are expected to support rural artisans and small businesses, especially in the handloom and handicrafts sector, by lowering GST rates on their products. Politically, the timing of the decision—just ahead of state elections—has been described as a “Diwali gift” aimed at boosting consumer sentiment.
Conclusion
The new GST framework simplifies India’s complex tax structure and places nearly 90% of goods in the lower tax slabs. By balancing consumer relief with higher rates on luxury and sin goods, the reform seeks to boost growth while maintaining fiscal discipline. The coming months will show how effectively the benefits are passed on to consumers.