India’s Goods and Services Tax (GST) framework has entered a new phase with its most significant reform since launch. Popularly referred to as GST 2.0, the updated system, effective from September 22, 2025, marks a decisive shift towards simplification, affordability, and long-term structural correction.
These GST reforms in India 2025 aim to reduce classification disputes, improve compliance, and directly lower the tax burden on essential goods. One of the biggest highlights is the restructuring of GST tax slabs.
The earlier four-tier GST structure – 5%, 12%, 18%, and 28%, has now been rationalised into a simplified slab framework of 0% / 5% / 18% / 40%. This article breaks down the new GST slabs 2025, explains key GST rate changes, and highlights which items become cheaper under GST 2.0.
The New Simplified GST Rate Structure
The core change is the virtual elimination of the 12% and 28% slabs for mass-consumption goods, making compliance easier and tax classification disputes fewer.
| New GST Slab | Description (Effective Sept 22, 2025) | Old Equivalent Slabs |
|---|---|---|
| 0% (Nil) | Exempted essential goods and services (e.g., unpackaged food, education). | 0%, 5%, 12% |
| 5% (Merit Rate) | Essential household goods, priority sectors (e.g., healthcare, MSMEs). | 5%, 12%, 18% |
| 18% (Standard Rate) | Standard goods, services, and white goods. | 18%, 28% |
| 40% (Demerit/Sin Rate) | Selective application on luxury items and ‘sin’ goods. | 28% + Cess (up to 50%) |
Rate Changes with Practical Examples
The GST 2.0 impact on consumers is most visible in everyday spending. Lower rates on essentials increase disposable income, while targeted higher rates on luxury items balance government revenue.
1. Daily Essentials & FMCG: The Household Savings
A major move to boost household budgets involves shifting many daily-use items from the 18% or 12% bracket to the 5% merit rate.
| Item | Old GST Rate | New GST Rate | Practical Impact (Savings on a ₹500 Purchase) |
|---|---|---|---|
| Toilet Soap / Shampoo | 18% | 5% | You save approx. ₹55. |
| Butter / Ghee / Cheese | 12% | 5% | You save approx. ₹30. |
| Bicycles / Utensils | 12% | 5% | A new utensil set worth ₹3,000 saves you ₹210. |
| UHT Milk / Pre-packaged Paneer | 5% | Nil | No more GST on your packaged dairy essentials. |
2. Automobiles and Mobility: The Cost of Commute Drops
One of the most discussed aspects of GST rate changes 2025 is the relief provided to middle-class vehicle buyers.
| Item | Old GST Rate | New GST Rate | Practical Impact |
|---|---|---|---|
| Small Petrol/Diesel Cars (Petrol Engines upto 1200cc, Diesel Engines upto 1500cc) | 28% (+ Cess) | 18% | Expected price reduction of ₹65,000 to ₹1,20,000 on models like the Maruti Swift or Hyundai Grand i10. |
| Motorcycles (Upto 350cc) | 28% | 18% | A two-wheeler priced at ₹1,00,000 is now ₹7,812 cheaper (assuming 28% to 18% shift on base). |
| Commercial Trucks/Vans | 28% | 18% | Lower capital cost for transport operators, leading to reduced logistics and freight costs across the economy. |
3. Consumer Electronics: Affordable Upgrades
Electronics like TVs and ACs, previously viewed as ‘luxury’ items under the 28% slab, have been moved into the standard 18% bracket, giving a major boost to consumer spending during festive seasons.
| Item | Old GST Rate | New GST Rate | Practical Impact |
|---|---|---|---|
| Air Conditioners (ACs) | 28% | 18% | A high-end AC worth ₹45,000 is now ₹4,500 cheaper. |
| Televisions (Above 32 inches) | 28% | 18% | A 55-inch TV costing ₹50,000 sees a price drop of approximately ₹5,000. |
| Dishwashers | 28% | 18% | Makes modern, time-saving appliances more accessible to urban families. |
4. Healthcare, Wellness & Education: Focus on Quality of Life
The reforms have significantly exempted or reduced taxes on critical services and items for health and learning.
| Item / Service | Old GST Rate | New GST Rate | Practical Impact |
|---|---|---|---|
| Individual Health & Life Insurance | 18% | Nil (Exempt) | A family paying ₹30,000 annual premium saves ₹5,400 in tax, supporting wider financial security. |
| Gyms, Salons, Yoga Centres | 18% | 5% | A ₹2,500 monthly gym membership now saves you ₹325 in tax. |
| Pencils, Erasers, Notebooks | 5% / 12% | Nil | Essential school supplies are now tax-free, easing the financial burden on parents. |
5. Demerit & Luxury Goods: The New 40% Slab
To compensate for the revenue loss from cuts on mass-consumption goods and align with public policy goals, a steep 40% rate has been introduced for ‘sin’ and super-luxury items.
| Item | Old GST Rate | New GST Rate |
|---|---|---|
| Sin Goods: Pan masala, tobacco products, cigars, chewing tobacco | 28% | 40% |
| Luxury Vehicles: cars with engine capacity over 1200cc(petrol) and 1500cc(diesel), Motorcycles over 350cc | 28% | 40% |
| Aerated and Sugary beverages | 28% | 40% |
| Personal Aircrafts and yachts | 28% | 40% |
| Entertainment: admission to casinos, race clubs, and sporting events like IPL | 28% | 40% |
| Premium services: restaurant dining at air-conditioned and premium outlets, premium smartphones, and imported gadgets | 28% | 40% |
