Major GST Reforms 2025: What Gets Cheaper, What Gets Costlier

The GST Council, led by Finance Minister Nirmala Sitharaman, has introduced a major overhaul of India’s indirect tax system under GST 2.0, effective from September 22, 2025. This reform simplifies the existing structure and is strategically timed ahead of the festive season to encourage spending and stimulate economic growth. The new framework reduces complexity, lowers tax on essential goods, and increases rates on luxury and sin products to balance revenue.

Key Structural Changes in GST 2.0

The biggest reform is the shift from the earlier four-slab structure (5%, 12%, 18%, and 28%) to a simplified two-slab system of 5% and 18%, along with a newly introduced 40% slab for luxury and harmful goods. The objective is clear: make essentials affordable while imposing higher taxes on non-essential and sin goods. This move is expected to ease compliance for businesses and improve tax transparency.

What Gets Cheaper Under the New GST Structure

Several essential and commonly used products have been moved to lower tax brackets, offering relief to households.

Personal Care and Daily Essentials

Items like hair oil, toothpaste, soaps, shampoos, toothbrushes, and shaving cream are now taxed at 5%, making daily hygiene products more affordable.

Food and Household Items

Packaged foods such as namkeens, instant foods, pasta, noodles, chocolates, coffee, ghee, and butter have been reduced to 5%. Kitchenware, bicycles, and tableware also benefit from lower taxation.

Staples such as UHT milk, roti, paratha, parotta, and unpackaged paneer are fully exempt from GST. Plant-based and soya milk are taxed at a minimal 5%.

Electronics and Appliances

Televisions, refrigerators, air conditioners, and dishwashers have moved from 28% to 18%, reducing prices for middle-class consumers. Cement and batteries are now uniformly taxed at 18%.

Healthcare and Medical Supplies

Most medicines, along with veterinary and surgical equipment, are now taxed at 5%, ensuring affordable healthcare access.

Service Sector Relief

Salons, gyms, and yoga centres will now attract 5% GST (without Input Tax Credit), down from 18%, potentially reducing service costs.

Agriculture and Insurance

Agricultural machinery like tractors, tyres, and spare parts have been reduced to 5%, benefiting farmers. In a landmark move, life and health insurance premiums are now completely exempt from GST, offering major financial relief.

What Becomes Costlier

To offset revenue losses, the government has introduced a 40% slab targeting luxury and sin goods.

Tobacco and Harmful Products

Pan masala, gutkha, cigarettes, bidis, and aerated drinks now fall under the highest slab. Tobacco taxation will also link directly to retail sale price, increasing final consumer cost.

Luxury Vehicles and Lifestyle Products

Motorcycles above 350cc, luxury cars, yachts, and personal aircraft are taxed at 40%, impacting high-end buyers.

Energy and Premium Beverages

GST on coal has been increased, which may influence electricity costs. Premium non-alcoholic beverages have also shifted to the higher tax bracket.

Economic and Market Impact

Economists predict a consumption boost due to lower taxes on essentials. GDP growth could increase by 100–120 basis points over the next few quarters. Despite an estimated ₹48,000 crore revenue impact, the reform is expected to support long-term expansion.

Stock markets reacted positively. FMCG, automobile, and electronics sectors witnessed gains, reflecting investor confidence.

Conclusion

The Major GST Reforms 2025 mark a transformative step in India’s taxation system. By reducing tax on essentials and increasing it on luxury and sin goods, the government aims to balance affordability with fiscal responsibility. GST 2.0 not only simplifies compliance but also encourages consumption, economic growth, and a more equitable tax structure for the future.

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