The Goods and Services Tax (GST) Council, chaired by Union Finance Minister Nirmala Sitharaman and supported by the Finance Ministry, held its 56th meeting on September 3, 2025, to announce landmark reforms in India’s indirect tax regime. The Council approved a simplified two-slab GST structure with rates of 5% for merit goods and 18% for standard goods, along with a 40% demerit rate applicable exclusively to super luxury, sin, and demerit items. This overhaul, the most significant since GST’s launch in 2017, aims to ease compliance, reduce costs, and benefit a broad spectrum of consumers, MSMEs, farmers, small traders, and the middle class.
Effective September 22, 2025, the new system will replace the previous four-tier rate structure of 5%, 12%, 18%, and 28% with just two main slabs. Super luxury goods, tobacco, pan masala, and similar products will fall under the 40% demerit tax, though changes for some of these items will be delayed until existing compensation cess liabilities are settled. The reforms were unanimously agreed upon by ministers from 31 states and Union Territories in a consensus-based decision.
| Category | Previous Rates | Revised Rates |
| Daily Essentials | 12% – 18% | 5% |
| Agriculture | 12% – 18% | 5% |
| Healthcare | 12% – 18% | Nil – 5% |
| Education | 5% – 12% | Nil |
| Automobiles | 28% | 18% |
| Electronic Appliances | 28% | 18% |
The GST overhaul brings sweeping rate cuts for a broad spectrum of items. Common-use products—packaged foods such as fruit juices, butter, cheese, condensed milk, pasta, coconut water, soya milk drinks, nuts, dates, and sausages—now fall under the lower 5% slab (down from 12–18%). Notably, medical items, including oxygen, gauze, bandages, and diagnostic kits, also see substantial reductions, alongside a nil GST rate on ultra-high-temperature milk, paneer, khakra, plain chapati, pizza bread, and erasers. Household articles such as hair oil, soap bars, shampoos, toothbrushes, toothpaste, bicycles, tableware, and kitchenware benefit from comparable relief.
A substantial shift is seen in the automotive space: white goods (air conditioners, TVs, dishwashers) move to the 18% slab, while small cars and motorcycles (under 350cc) also become more affordable, taxed at 18%. Larger cars now fall under the stricter 40% rate, while electric vehicles retain the 5% GST rate. Sectors such as textiles and fertilizers are set for an uplift, with manmade yarn/fibre and key agricultural inputs dropping to 5% GST.
Process reforms include automated GST refunds, simplification of registration, and operationalisation of a GST appellate tribunal—expected to reduce litigation and foster predictability. The overhaul also resolves the long-standing issue of an inverted duty structure, directly addressing cash flow challenges for businesses and boosting confidence in compliance. Blanket GST exemptions on individual life and health insurance further underscore the Council’s pro-people approach.
Industry leaders have welcomed the clarity and simplicity brought by GST 2.0, praising the immediate benefits for consumers and businesses alike. Trideep Bhattacharya, President and CIO-Equities at Edelweiss Mutual Fund, described GST 2.0 as a significant reset in India’s consumption landscape, unlocking growth potential in staples, durables, and automobiles by rationalizing slabs and increasing sin goods taxation.
Adding to this, Avneesh Sood, Director of Eros Group, called the reduction of GST on cement from 28% to 18% a landmark reform. He said this move will directly improve housing affordability while offering developers relief on input costs, facilitating timely project delivery, healthier margins, and access to affordable homes, particularly in the affordable and mid-income segments. According to him, this reform supports both consumers and developers while reinforcing the government’s ‘Housing for All’ mission.
Hemant Jain, President of PHDCCI, welcomed the GST rationalisation starting September 22, 2025, as a milestone reform that will boost consumer demand and enhance state revenue efficiency, creating a virtuous cycle of economic growth and stability. Jetaish Gupta, Founder and Director of Adore Group, also praised the cut in GST on cement as crucial for the real estate sector, as it reduces one of the largest input costs for builders, enabling affordable housing and faster project completion while rejuvenating India’s housing aspirations.
Also Read: South Indian Bank embarks on digital transformation with MoEngage partnership
As GST 2.0 rolls out, India looks toward a simpler and more inclusive tax system, fostering household savings, MSME growth, and sectoral innovation. The reform embodies the government’s commitment to ease of doing business and financial relief for all citizens, positioning GST as the cornerstone for India’s next phase of economic expansion.
