Effective today,
September 22, 2025, the Goods and Services Tax (GST) system in India has undergone a major overhaul, introducing a simplified structure with significant rate changes for various products and services. The previous multi-slab system (0%, 5%, 12%, 18%, 28%) has been primarily replaced by a three-slab framework: 0% (exempt), 5%, and 18%, with a special 40% rate for luxury and sin goods.
Here is a summary of key product categories and their revised GST rates:
- 0% GST (Exempt): Essential items like fresh milk, eggs, curd, unpackaged food grains, Ultra-High Temperature (UHT) milk, pre-packaged paneer, and all types of Indian breads (chapati, roti, paratha) are now exempt. Certain life and health insurance policies, 36 life-saving drugs, and some education and stationery items (e.g., pencils, sharpeners, maps) are also exempt.
- 5% GST: This “Merit Rate” covers a broad range of commonly used goods and services, often reduced from previous 12% or 18% rates. This includes:
- Food and Beverages: Most packaged food items (biscuits, namkeen, pasta, butter, ghee, cheese, dry fruits), ice cream, coffee, fruit juices, and plant-based milk drinks. Drinking water in 20-litre bottles also moves to 5%.
- Household and Personal Care: Hair oil, shampoo, soap, toothpaste, toothbrushes, household cleaners, and appliances like utensils, kitchenware, umbrellas, and bicycles. Footwear and apparel priced up to ₹2,500 also fall into this slab.
- Healthcare: Most medicines and many medical consumables (diagnostic kits, reagents, surgical instruments, thermometers) are now taxed at 5%.
- Agriculture and Manufacturing: Tractors and agricultural machinery, fertilizers, and raw materials like bamboo flooring, cement bonded particle board.
- Services: Services at salons, gyms, yoga centers, and hotel stays with tariffs between ₹1,000 and ₹7,500 per night are now at 5% GST.
- 18% GST: This “Standard Rate” is the default for most goods and services, often seeing reductions from the previous 28% slab. This includes:
- Automobiles: Small cars (under 1200cc petrol/diesel engines, under 4m length), motorcycles up to 350cc, and auto parts are now taxed at 18%. Commercial vehicles like buses and trucks also see this reduction.
- Consumer Electronics & Appliances: Air conditioners, televisions, refrigerators, washing machines, and dishwashers are now at 18% GST.
- Construction: Cement and associated materials like Portland cement and hydraulic cements are now at 18%.
- Other: Cement, coal, lignite, peat, batteries, printers, and computers are also in this slab.
- 40% GST: This highest slab applies to Luxury and “Sin” goods. This includes:
- Luxury and Sin Goods: Premium cars, motorcycles over 350cc, aerated and carbonated beverages, yachts, personal aircraft, revolvers, pistols, and activities like betting, online gaming, and casino services.
- Note: Tobacco and related products, pan masala, gutka, and cigarettes will eventually move to the 40% slab, but will continue at the existing 28% GST plus compensation cess until loan repayment obligations are met.
Key Qualitative Insights
- These reforms aim to simplify the tax structure, reduce the tax burden on consumers for essential goods, and boost economic activity, particularly in sectors like food processing, textiles, and electronics.
- The government expects the changes to provide significant savings for households, especially for daily essentials and insurance premiums, potentially freeing up to ₹2.5 lakh crore for consumers.
- Lower GST rates on automobiles and appliances are intended to stimulate demand, particularly in the run-up to the festive season.
- The higher taxes on luxury and sin goods reflect a “more income, more tax” approach aimed at discouraging consumption of non-essential or harmful products.
- The Consumer Affairs Secretary has warned companies to pass on the benefits of the GST rate cuts to consumers, threatening action against those who fail to do so
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