India’s GST Council in its 56th meeting has announced a major reform to the Goods and Services Tax structure, cutting the tax slabs down to just two rates of 5% and 18%, alongside a newly introduced 40% slab for luxury and sin goods, effective from September 22, 2025.
The goods and services tax (GST) reforms in India will change the former four-tier tax structure (5%, 12%, 18%, and 28%) to a much simpler two-tier system consisting of only 5% and 18%.
Daily-use and essential items such as toiletries, dairy products, and basic packaged foods, as well as agricultural tools, will be taxed at 5%, while factory-produced goods, mid-range products, and most services will be charged the standard 18%.
Major Changes Benefiting the Consumer
- Items like hair oil, toilet soaps, shampoos, and even bicycles are now taxed at 5% GST, compared to the previous 18%.
- Essential food items like milk, paneer, roti, and some breads are now fully exempt from GST (moved from 5% to nil).
- Packaged foods including namkeen, butter, ghee, jams, biscuits, and dry fruits now fall under the 5% slab.
- Life and health insurance premiums are now GST-free, down from 18% previously.
- 33 life-saving medicines, spectacles, and corrective goggles now carry 5% GST, reduced from 28% and 12%.
Items Still at Higher Rates
- Sin goods such as pan masala, cigarettes, gutkha, tobacco, and beedi will continue to be taxed at the existing rates of 28% plus compensation cess, pending the discharge of loan and interest payments under the compensation cess account.
- Selective luxury items (aerated water, certain vehicles, helicopters, yachts) now face the new 40% slab.
The new GST slab structure, effective September 22, 2025, is designed to simplify taxation and reduce costs for most goods, benefiting consumers and businesses alike. This reform marks a significant step toward a more efficient and consumer-friendly tax system.
