New Delhi, 4th September 2025 – The Goods and Services Tax (GST) Council has cleared the way for a significant would-be transformation in the structure of the tax system in India. The number of tax slabs has been reduced to two principal rates – 5% and 18%. A new slab of 40% is drawn up to capture luxury/harmful goods i.e. high-end cars, tobacco and aerated drinks.
The new rates will be applicable on September 22 for most goods and services. However, some things like pan masala, gutkha, cigarettes, and bidis will remain under the present system until the dues that are still in place are cleared.
What Becomes Less Expensive
Food & Drinks
- No GST: Chapatis, Parathas, Paneer, Khakra, UHT Milk, and Pizza bread.
- 5% GST (previously 18%): Butter, Ghee, Dried Fruits, Namkeen, Jam, Jellies, Cornflakes, Biscuits, Ice Cream, Confectionery, Plant-Based Milk, and Soya Milk Drink.
Household Items
- 5% GST: Toothpaste, toothbrushes, shampoo, soap, hair oil, talcum powder, feeding bottles, combs, umbrellas, bicycles, kitchenware, bamboo furniture.
Appliances & Electronics
- 18% GST (decreased from 28%): Air-conditioners, dishwashers, televisions, monitors.
Education and Stationery
- No GST: Maps, charts, pencils, exercise books, erasers, and crayons.
Clothing and Footwear
- 5% GST (down from 12%): Textiles and footwear.
Healthcare and Insurance
- No GST: Life and health insurance policies.
- 5% GST: Thermometers, oxygen, diagnostic kits, glucometers, test strips, spectacles, and some medicines.
Vehicles & Auto Parts
- 18% GST (was 28%): Motorcycles up to 350 cc, small hybrid cars, auto parts, and cement.
- 5% GST: Electric vehicles and agricultural tractors.
Agriculture
- 5% GST: Fertiliser inputs, bio-pesticides, irrigation equipment, threshing and harvesting equipment, composting equipment, and tractor parts.
Services
- 5% GST (was 18%): Salons, gyms, yoga centres, and health clubs.
What is Becoming More Expensive
Beverages
- 40% GST (previously set at 18–28%): Aerated drinks and caffeinated beverages, sweetened drinks, and soft drinks (for example, Coca-Cola and Pepsi).
Vehicles
- 40% GST: Large cars (over 1,200 cc petrol or 1,500 cc diesel), SUVs, motorcycles over 350 cc, yachts, private planes, and racing cars.
- Taxation for tobacco products is presently subject to a tax of 28% plus cess, moving to 40% GST once outstanding debt is resolved.
- Leisure and gaming employ 40% GST, including casinos, race clubs, horse racing, online gaming, government lotteries and of course, IPL tickets.
FM Nirmala Sitharaman clarified that the move to introduce a two-tier GST structure is unrelated to US tariffs on India. She said the central government has been working on these reforms for the past 1.5 years.
Why This Matters
The government hopes the reform will lead to lower prices for necessities, resulting in households spending more and ultimately reducing inflation. In contrast, luxury and demerit goods will face higher prices.
Experts believe this move could provide the economy with a substantial boost in the festive season.
The new rules will come into force from September 22, 2025.
