GST council approves 2-slab structure: What gets cheaper, what gets costlier | Details

By Admin

04 Sep, 2025

In a landmark decision, the Goods and Services Tax (GST) Council on Wednesday approved a major revamp of India’s indirect tax regime. After a marathon 10.5-hour meeting, the Council replaced the existing four-tier structure of 5%, 12%, 18%, and 28% with a simplified two-rate system of 5% and 18%, while introducing a special 40% slab for select items.

The new GST rates will come into effect from September 22, coinciding with the start of Navaratri. Union finance minister Nirmala Sitharaman confirmed that the reform was unanimously supported by all states, aiming to ease compliance, reduce costs, and directly benefit consumers.

Prime Minister Narendra Modi hailed the move, calling it a reform that will empower farmers, MSMEs, small traders, and the middle class while providing a strong boost to the economy.

What Gets Cheaper?

The new GST structure significantly reduces rates for essential goods and services that touch everyday lives:

• Insurance relief: Individual life and health insurance policies will now attract zero GST, down from 18%.
  
  

• Daily food items: Ultra high temperature milk, paneer, paratha, roti, pizza bread, khakra, and chena are now fully exempt from GST.
  
  

• Reduced food taxes: Butter, ghee, condensed milk, cheese, dry fruits, jams, jellies, confectionery, ice cream, pastry, biscuits, corn flakes, and cereals are down to 5% GST from 12–18%.
  
  

• Agriculture boost: Fertiliser inputs like sulphuric acid, nitric acid, ammonia, biopesticides, and micronutrients will now attract 5% GST. Agricultural equipment including tractors, threshers, and soil-preparation machinery also fall under the 5% slab.
  
  

• Automobile relief: Small cars (petrol <1200cc, diesel <1500cc), motorcycles up to 350cc, and small hybrid cars will now face 18% GST instead of 28%. EVs remain at 5%.
  
  

• Everyday essentials: Shampoo, toothpaste, toothbrushes, soaps, talcum powder, hair oil, tooth powder, feeding bottles, utensils, bicycles, umbrellas, and bamboo furniture are now at 5% GST.
  
  

• Construction sector: GST on cement has been reduced to 18% from 28%, while auto components also move to the 18% slab.
  
  

What Gets Costlier?

While many items see relief, certain goods face steep hikes under the new 40% slab:

• Beverages: Soft drinks, colas, fruit-based aerated drinks, energy drinks, and other caffeinated beverages will now face 40% GST, up from 28%.
  
  

• Luxury vehicles & lifestyle goods: Cars with petrol engines above 1200cc or diesel above 1500cc (longer than 4,000 mm), motorcycles above 350cc, racing cars, yachts, and personal-use aircraft will now attract 40% GST.
  
  

• Sugary drinks: Aerated waters and flavoured beverages containing added sugar or sweeteners will also be taxed at 40%.
  
  

• Tobacco products: Pan masala, gutkha, cigarettes, chewing tobacco, and bidi will continue at 28% plus compensation cess until dues are repaid, after which they too will shift to the 40% slab.
  
  

What This Means for Consumers and Businesses

This reform simplifies the tax system, reduces the burden on essential items, and makes compliance easier for businesses. Consumers will save on daily-use goods, insurance, and small vehicles, while luxury and lifestyle products will be heavily taxed to discourage non-essential spending.

By focusing relief on farmers, MSMEs, and the middle class, the government aims to stimulate consumption and strengthen economic growth. Meanwhile, higher taxes on luxury and harmful products will boost revenue and promote healthier choices.

As India enters a new phase of its tax journey, the simplified GST structure marks a step towards efficiency, equity, and economic empowerment.