India’s Goods and Services Tax (GST) has entered a new chapter. In what is being called GST 2.0, the 56th meeting of the GST Council approved a two-rate structure of 5% and 18%, replacing the earlier four-slab system of 5%, 12%, 18%, and 28%. To balance revenue, the Council has also introduced a special 40% slab exclusively for sin and luxury goods.
This reform, set to take effect from September 22, 2025, is being hailed as the most decisive step in the GST journey since its rollout in 2017. It promises to make daily life more affordable, ease compliance burdens for businesses, and enhance consumption across sectors.
Since its inception, GST has aimed to unify India’s indirect tax system. But the multiple slabs created confusion, disputes, and compliance costs. Businesses often struggled with product classifications, while consumers were unclear on why certain essentials were taxed as luxuries.
With GST 2.0, the government hopes to:
Simplify the tax system with fewer slabs.
Ease pressure on household budgets by lowering rates on essentials.
Support sectors like FMCG, healthcare, auto, and infrastructure.
Retain revenue by heavily taxing sin and luxury products.
Finance Minister Nirmala Sitharaman described the move as “a reform that puts affordability, clarity, and fairness at the heart of GST.”
Two main slabs only: 5% and 18%.
40% slab: Reserved for products considered harmful (like tobacco) or luxury (like yachts).
Exemptions expanded: Health insurance, life insurance, and staple foods like milk, paneer, and roti are tax-free.
Daily-use products made cheaper: Shampoos, soaps, cooking oils, and biscuits are shifted to 5%.
Luxury vehicles, firearms, gambling, and sugary drinks taxed at 40%.
Effective date: September 22, 2025.
The biggest relief comes for middle-class families, with household and food essentials moving to lower slabs:
0% GST: Life insurance and health insurance premiums, UHT milk, paneer, chapati, roti, paratha, life-saving medicines, school supplies (maps, notebooks, crayons).
5% GST:
Personal care: Hair oil, shampoo, toothpaste, soaps, shaving cream, toothbrush.
Food: Butter, ghee, cheese, namkeens, biscuits, chocolates, confectionery, vegetable oils, cornflakes, fruit jellies.
Baby products: Feeding bottles, diapers, clinical baby care.
Healthcare: Thermometers, oxygen, diagnostic kits, glucometers, spectacles.
Agriculture: Fertilizers, drip irrigation systems, sprinklers, bio-pesticides.
Clothing & footwear: Affordable apparel and shoes.
18% GST:
Vehicles: Small cars (petrol up to 1200 cc, diesel up to 1500 cc), motorcycles up to 350 cc, three-wheelers.
Electronics: TVs above 32”, ACs, washing machines, dishwashers, projectors.
Industrial: Road tractors, heavy machinery.
At the other end, items seen as luxury or harmful will now face the 40% GST slab:
Tobacco & Pan Masala: Cigarettes, bidis, gutkha, zarda, smoking pipes.
Sugary & Caffeinated Beverages: Aerated soft drinks, caffeinated energy drinks, fruit juice-based carbonated beverages.
Luxury Vehicles: Cars above 1200 cc petrol or 1500 cc diesel, longer than 4000 mm, racing cars.
High-End Motorcycles: Above 350 cc.
Luxury Lifestyle & Leisure: Yachts, private aircraft, pleasure vessels.
Weapons & Gaming: Revolvers, pistols, gambling, casinos, horse racing, online money gaming.
| GST Rate | Categories | Examples |
|---|---|---|
| 0% | Health & insurance | Life insurance premiums, health insurance policies |
| Essential food | UHT milk, paneer, roti, chapati, paratha | |
| Education supplies | Maps, notebooks, pencils, crayons, erasers | |
| Medicines | Cancer drugs, rare disease drugs | |
| 5% | Personal care | Shampoo, soaps, toothpaste, shaving cream, toothbrush |
| Food & dairy | Butter, ghee, cheese, namkeens, biscuits, cornflakes, chocolates, confectionery, vegetable oil | |
| Baby products | Feeding bottles, diapers, baby napkins | |
| Healthcare | Oxygen, diagnostic kits, thermometers, spectacles | |
| Agriculture | Fertilizers, irrigation systems, sprinklers, pesticides | |
| Clothing & footwear | Affordable apparel, textiles, footwear | |
| 18% | Vehicles | Small cars, motorcycles ≤350 cc, three-wheelers |
| Electronics | TVs (>32”), ACs, washing machines, dishwashers, projectors | |
| Machinery | Road tractors, industrial equipment | |
| 40% | Tobacco & pan masala | Cigarettes, gutkha, zarda, bidis, smoking pipes |
| Beverages | Sugary soft drinks, caffeinated energy drinks | |
| Luxury autos | Cars >1200 cc (petrol), >1500 cc (diesel), >4000 mm length, racing cars | |
| Motorbikes | Motorcycles >350 cc | |
| Luxury lifestyle | Yachts, private aircraft, pleasure vessels | |
| Arms & gaming | Pistols, revolvers, casinos, betting, horse racing, online money gaming |
With reduced rates on food, toiletries, and utilities, households will feel direct savings. Essentials like roti, milk, butter, and personal care products now fall in the cheapest slabs.
The exemption of health and life insurance, along with cheaper medicines and equipment, makes healthcare more affordable, supporting government efforts toward universal coverage.
Lower GST on fertilizers, irrigation, and farm equipment will benefit farmers, reduce input costs, and improve rural incomes.
Two-wheelers (≤350 cc) and small cars shift to 18% GST, boosting demand in the middle-class segment. Luxury cars and bikes, however, get costlier with 40%. EVs continue at 5%, supporting clean energy adoption.
Cheaper cement and construction materials will lower project costs, allowing developers to pass savings to homebuyers. Analysts expect an uptick in housing demand ahead of the festive season.
Simplified slabs reduce classification disputes and compliance headaches. FMCG, infra, and consumer durables sectors anticipate stronger consumption growth.
Markets welcomed the reform. On the day of announcement:
Sensex surged 550 points, Nifty crossed 24,850.
Auto stocks (Tata Motors, Maruti, Hero, TVS, Bajaj) gained on lower GST for small cars and two-wheelers.
FMCG stocks rose as rates on shampoos, biscuits, and dairy products were cut.
Infra & cement stocks saw renewed investor confidence.
Analysts expect consumer-driven growth to get a push, though revenue management remains a challenge.
PM Narendra Modi: Called GST 2.0 “a reform that places the citizen at its core.”
Industry bodies (CII, FICCI): Welcomed the simplification and affordability boost.
Experts: Called it a step that can revive consumption but warned revenue shortfalls must be managed carefully.
States like West Bengal: Raised concerns of revenue loss (₹4.77 lakh crore estimated), but none opposed the changes.
Revenue balance: Heavy cuts may reduce state revenues, testing the 40% slab’s capacity to fill the gap.
Business transition: Companies must reconfigure billing, accounting, and compliance systems before September 22.
Enforcement: Luxury and sin goods under RSP-based valuation require strict monitoring to prevent evasion.
Classification clarity: Authorities must ensure no ambiguity, avoiding past controversies like “roti vs parotta.”
With GST 2.0, India moves closer to a simplified, consumer-friendly, and business-friendly tax regime. Essentials are cheaper, healthcare is more accessible, and small cars and bikes are affordable again. At the same time, the government maintains high levies on luxury and harmful products.
As this reform comes into force on September 22, 2025, it will not only reshape household budgets but also drive consumption, strengthen industry confidence, and add momentum to India’s growth story.