India’s GST Overhaul: New Two-Slab System Introduced

Introduction about GST

Launched on 1 July 2017, India’s Goods & Services Tax (GST) unified multiple indirect taxes—like VAT, service tax, excise, and entertainment tax—into a destination-based, value-added tax system. Originally comprising five broad rates (0%, 5%, 12%, 18%, 28%) plus cesses on select items, GST aimed to simplify taxation, promote transparency, and improve compliance.

Total Slabs of GST

• Pre-reform: GST operated under four main slabs—5%, 12%, 18%, and 28% (with a 0% for exempted items and additional cess for luxury items).
• Post-reform (effective September 22, 2025):
  • 5%: Daily essentials, household items, healthcare, agriculture goods, educational items, etc.
  • 18%: Consumer durables (ACs, TVs, dishwashers), automobiles, small cars, some appliances.
  • 40%: A new slab for “sin” and luxury goods—tobacco, pan masala, aerated drinks, high-end cars, and carbonated beverages.
  • 0% (Exemptions): Life-saving drugs, health/life insurance policies, Indian breads, UHT milk, chena/paneer, maps, notebooks, and some educational tools.

Current Updates about GST

• The GST Council, chaired by Finance Minister Nirmala Sitharaman, officially approved the rationalisation on September 3, 2025, marking India’s most significant GST reform yet.
• The changes are scheduled to be implemented from September 22, 2025, aligning with the Navratri festival.
• The reforms are expected to spur consumption, ease household expenses, and provide relief across sectors—particularly benefiting FMCG, MSMEs, healthcare, and automobile industries.
• The government anticipates a revenue loss of approximately ₹48,000 crore (₹480 billion), which it hopes will be neutralised by increased demand and economic activity.
• The move has already begun influencing prices: Raymond Lifestyle plans to reduce prices of apparel under ₹2,500 in response to the GST cuts—reflecting real-world consumer impact.

Summary Table