GST Reforms 2025: A Historic Shift in India’s Indirect Taxation

India will roll out sweeping reforms to its Goods and Services Tax (GST) system from September 22, 2025, in what is being described as the most significant overhaul since the tax’s inception. The new framework will consolidate the existing four-rate structure into two principal slabs—5% and 18%—along with a special 40% “sin tax” on select luxury and demerit goods.

The reforms, announced earlier this month by the GST Council chaired by Finance Minister Nirmala Sitharaman, aim to simplify compliance, rationalize rates, and spur consumption ahead of the festive season.

The New Structure

• 5% slab – Essential goods.

• 18% slab – Most goods and services.

• 40% sin tax – Luxury and demerit goods including tobacco, alcohol, pan masala, betting, and online gaming.

This consolidation is expected to ease compliance for businesses while lowering consumer prices on several everyday products currently taxed at 12% or 28%.

What Gets Cheaper

Everyday Essentials
Products shifting from 12% to 5%:

• Toothpaste, soaps, shampoos.

• Packaged foods such as biscuits, snacks, and juices.

• Dairy items like ghee and condensed milk.

• Bicycles and stationery.

• Apparel and footwear below specified price thresholds.

Why it matters: Lower prices on household items translate into significant monthly savings for middle-class families.

Household Appliances & Electronics
Goods moving from 28% to 18%:

• Air conditioners.

• Refrigerators, dishwashers, and large-screen televisions.

• Cement, critical for housing and infrastructure.

Why it matters: Appliances and construction materials become more affordable, boosting demand in key consumer and housing sectors.

Automobiles

• Small cars (engine size under 1,200cc) may see GST reduced from 28% to 18%.

• Two-wheelers, the backbone of Indian mobility, are also expected to move into the lower slab.

• Larger luxury cars and SUVs will remain under higher taxation.

Why it matters: Lower costs for small cars and two-wheelers could revive demand in the auto sector, benefiting manufacturers like Maruti Suzuki, Hyundai, and Tata Motors.

Insurance & Financial Services
Currently taxed at 18%, insurance premiums may see rate cuts or partial exemptions under the new regime.

Why it matters: Reduced premiums will expand coverage, strengthening financial security for middle-income households.

What Stays Expensive

Despite broad relief, certain goods will face higher or sustained taxes:

• Tobacco products, alcohol, and pan masala.

• Online betting and gaming platforms.

• Petroleum products (still outside GST).

• Luxury items such as diamonds and precious stones.

Economic Impact

• Boost to Consumption: Lower prices on essentials and big-ticket items are expected to drive consumer spending.

• Positive Market Sentiment: Stock indices have already responded; the Nifty 50 surged over 1% following the announcement, led by auto and consumer goods stocks.

• Growth Outlook: Economists estimate the reforms could add 0.7–0.8 percentage points to GDP growth by stimulating demand and simplifying compliance.

• Everyday Relief: Consumers will notice the impact in three ways—cheaper shopping baskets, savings on appliances and vehicles, and lower insurance premiums.

For businesses, particularly small and medium enterprises, GST 2.0 represents a simplified structure that reduces compliance burdens and enhances ease of doing business.