When the new GST regime took effect on 22 September 2025, it marked more than just a rate revision—it was a deliberate reset of India’s indirect tax architecture. The government’s aim: to make the system simpler, fairer, and more responsive to the needs of everyday citizens, businesses, and key sectors.
Under the previous GST setup, India operated with four primary tax rates (5 %, 12 %, 18 %, 28 %). The reform compresses this into a two-slab model—5 % (merit rate) and 18 % (standard rate)—with a new 40 % “demerit” slab for luxury and sin goods.
Many items formerly in the 12 % bracket have shifted to 5 %. Around 90 % of products in the 28 % band have been moved to 18 %. A few high-end and harmful goods like, tobacco, aerated
drinks, luxury vehicles are now taxed at 40 % to balance revenue interests.
Beyond rate cuts, structural fixes accompany the changes: rationalising inverted duty structures, streamlining classification, accelerating refunds, and easing compliance burdens.
Who Gains and How
Households and daily essentials: Staples like paneer, roti, UHT milk, and unpackaged food items have been moved to nil or 5 % slabs, directly easing household budgets. Personal care items previously at 18 % now attract only 5 %.
Healthcare & wellness: Life-saving drugs, medical devices, and even vision correction equipment now attract 0–5 % GST. Health and life insurance premiums have been exempted.
Mobility & appliances: Two-wheelers, small cars, TVs, air conditioners, cement, construction material—many of these have been slotted into the 18 % slab down from 28 %.
Agriculture & rural economy: Farm machinery, irrigation equipment, tools, leather goods, handicrafts, and textiles have seen steep cuts (often to 5 %). This should ease input costs and
boost productivity.
MSMEs & startups: Lighter compliance, fewer slabs, swifter refunds, and a more predictable tax system are crafted to support small businesses.
Challenges & Risks
No reform is without tension. The government faces an estimated revenue shortfall, with some analyses predicting a net loss of ~ ₹48,000 crore (after offset from the new 40 % slab).
Enforcement will matter. To ensure that businesses pass on the benefit to consumers, the CBIC has ordered field offices to monitor prices of select goods post-implementation.
In insurance, while premiums are exempt, insurers lose the input tax credit on commissions, raising costs for them and possibly altering business models.
Looking Ahead
The reform goes beyond rate cuts and it signals a shift toward citizen-centric taxation. By easing rates on essentials, supporting rural and health sectors, and simplifying business norms, the government aims for inclusive growth. Its success, however, will hinge on transparent implementation, strict anti-profiteering checks, and sustained dialogue with stakeholders to ensure the benefits truly reach the people.
FOOD & BEVERAGES
Nil Tax: Chapati, Paranthas, Paneer, Milk, Khakra
5% GST ( earlier 12%): Butter, Ghee, Dry Fruits, Jam, Biscuits, Cereals, Ice creams,
Juices
5% GST ( earlier 12-18%): Plant based & Soya milk drink
HOUSEHOLD ESSENTIALS
5% GST ( earlier 18%): Toothpaste, Shampoo, Soaps, Hair oil
5% GST ( earlier 12%): Utensils, Bicycles, Bamboo Furniture
Nil Tax: Stationery: Notebooks, Crayons, Pencils
HEALTHCARE & INSURANCE RELIEF
Nil Tax: Life & Health Insurance
5% or Nil Tax: Life-Saving Drugs, Oxygen, Diagnostic Kits
5% GST ( earlier 18%): Thermometers
AUTOMOBILE
18% GST ( earlier 28%): Motorcycles <350cc
18% GST ( earlier 28%): Auto Components
Continues at 5% : Electric Vehicles
Cheaper: Small Hybrid Cars
18% GST ( earlier 28%): Cement
TRAVEL, HOTELS & LIFESTYLE
5% GST: Hotel Rooms < ₹7,500
5% GST: Economy Flights
5% GST ( earlier 18%): Salons, Gyms, Yoga Services
FUEL – POWERED VEHICLES
18% GST ( earlier 28%): Petrol, LPG & CNG Cars (<1200cc, <4000mm), Diesel Cars (<1500cc, <4000mm), Motorcycles <350cc
AGRICULTURE
5% GST ( earlier 12%): Tractors, trailers, pumps, harvesters
5% GST ( earlier 18%): Fertilizer inputs (sulphuric acid, ammonia, nitric acid)
5% GST ( earlier 12-18%): Biopesticides& Micronutrients
5% GST ( earlier 18%): Tractor parts (tyres, gearboxes, pumps)
WHAT GETS COSTLIER?
40% GST ( earlier 28%): Aerated & Caffeinated drinks
40% GST ( earlier 18%): NON – alcoholic beverages
40% GST: Cars > 1200cc, Bikes > 350cc
40% GST: Yachts, aircrafts, casinos, online gaming
40% GST ( Post – Covid Cess): Tobacco Products