New Delhi, September 4, 2025 : In a landmark decision aimed at easing the tax burden on households and boosting consumer spending, the Goods and Services Tax (GST) Council on Wednesday approved a sweeping overhaul of the indirect tax structure.
The Council rationalised rates across a wide spectrum of goods and services, reducing the four-slab system (5%, 12%, 18%, 28%) to just two key slabs – 5% and 18%. A special 40% slab will apply to select luxury and sin goods. The changes take effect from September 22, the first day of Navaratri.
Key Highlights of GST Overhaul
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Essential Food Items: Daily use items such as plain roti, paratha, pizza bread, khakra, paneer, UHT milk, and chena will now attract nil tax, down from 5–18%.
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Processed & Packaged Foods: Butter, ghee, cheese, condensed milk, dry fruits, dates, avocados, sausages, jams, confectionery, namkeen, ice cream, biscuits, cornflakes and packaged juices will fall to 5% GST (earlier 12–18%).
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Education Materials: Erasers, sharpeners, exercise books, and maps will now be tax-free, reduced from 5%.
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Household Goods: Shampoo, toothpaste, toothbrushes, soaps, hair oil, talcum powder, feeding bottles, kitchenware, bicycles, and bamboo furniture will move from 12–18% to 5%.
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Insurance & Healthcare: Premiums for individual life and health insurance (including family floaters) are exempt from GST (earlier taxed at 18%).
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Construction & Housing: Cement will attract 18% GST (down from 28%), expected to reduce construction costs.
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Automobiles & Electronics:
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Small petrol and diesel vehicles (within 1200–1500cc engines, <4000 mm length) will now be taxed at 18% (earlier 28%).
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Motorcycles up to 350cc and consumer electronics like ACs, dishwashers, washing machines, and TVs will also shift to 18% from 28%.
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Luxury and High-End Vehicles (cars >1200cc petrol or >1500cc diesel, motorcycles above 350cc, yachts, private aircraft, racing cars) will attract a new 40% GST.
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Aerated drinks with added sugar also move to 40% GST.
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Tobacco Products: Cigarettes, gutkha, bidi, and chewing tobacco will remain under the 28% GST slab plus compensation cess until COVID-related state compensation loans are repaid. Post-repayment, they will attract 40% GST.
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Electric Vehicles (EVs): No change, continue at 5% GST.
Focus on Common Man & Economy
Briefing reporters after the marathon meeting, Union Finance Minister Nirmala Sitharaman said all decisions were unanimously approved by states, underscoring a rare consensus.
“The reforms have been carried out with the common man in mind. In most cases, tax rates have come down drastically. This will give a positive push to GDP growth,” she said.
Sitharaman added that labour-intensive industries, agriculture, and healthcare would receive a direct boost. “Key drivers of the economy have been given prominence,” she remarked.
Revenue Implications
Revenue Secretary Arvind Shrivastava estimated the fiscal impact of the overhaul at ₹48,000 crore annually, calling it “fiscally sustainable” for both the Centre and states.
“Rate rationalisation results in buoyancy. We expect consumption to rise and compliance to improve,” he said.
Political Consensus
Opposition-ruled states, which earlier raised concerns about revenue shortfalls, supported the reforms during the meeting. Compensation issues were addressed by extending the GST Council’s revenue protection mechanism.
Geopolitical Context
The reforms come against the backdrop of steep US tariffs (50%) on Indian exports, the highest globally. Officials said the new GST structure would stimulate domestic consumption, helping cushion the economy against external shocks.
⚖️ At a Glance – GST Overhaul
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Slabs Rationalised: From 5%, 12%, 18%, 28% → Now 5% & 18% (with 40% for luxury/sin goods).
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Essentials: Roti, paratha, paneer, UHT milk – Nil tax.
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Household Goods: Shampoo, toothpaste, hair oil, bicycles – 5% GST.
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Insurance: Life & health insurance premiums – Nil tax.
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Construction: Cement down from 28% → 18%.
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Vehicles/Electronics: Cars, ACs, TVs – 28% → 18%.
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Luxury Goods: High-end vehicles, yachts, aircraft, aerated drinks – 40% GST.
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Tobacco: 28% + cess until loans cleared → then 40%.
