INTRODUCTION
In a landmark move aimed at streamlining India’s indirect taxation system and boosting consumption, the GST Council has approved GST 2.0, a major overhaul of the Goods and Services Tax (GST) structure. Effective from September 22, 2025, the revamped regime introduces a simplified tax system, significantly lowering tax rates on essential and everyday use items while maintaining a high tax burden on sin and luxury goods.
The reform is being seen as a vital step toward making the GST regime more equitable, transparent, and growth-friendly, especially in the context of rising cost of living pressures and the government’s push to stimulate economic activity.
THE NEW GST STRUCTURE
Under the restructured GST regime, there will be four main slabs:
- 0%: Essential goods and educational/health products
- 5%: Mass consumption items and agricultural inputs
- 18%: Standard consumer durables and mid-range automobiles
- 40%: Sin goods and luxury products
This shift from the earlier five-tier structure (which included the 12% and 28% slabs) to a more streamlined model is expected to simplify compliance, reduce disputes, and improve the ease of doing business. For More Information Visit: Press Release:Press Information Bureau
WHAT BECOMES CHEAPER?
1) Daily Essentials and Personal Care
A wide range of daily use items has moved to the 5% slab from the earlier 12% or 18%. These include:
- Hair oil, toothpaste, toothbrushes, toilet soaps, and shaving creams, all reduced from 18% to 5%
- Refined sugar, syrups, candies, toffees, and other confectionery items now taxed at 5%
- Dairy products like butter, ghee, cheese, and condensed milk, down from 12% to 5%
Additionally, Ultra High Temperature (UHT) milk and Indian breads are now entirely exempt from GST, making them more affordable for households across income levels.
2) Dry Fruits and Packaged Snacks
In a boost to both consumers and the food processing industry, dry fruits such as almonds, cashews, pistachios, hazelnuts, and dates have seen their GST rates drop from 12% to 5%. Similarly, ready-to-eat savoury snacks, including namkeens, bhujia, and mixtures, now attract only 5% tax.
3) Household Utilities and Infant Care
A range of commonly used household items now fall under the reduced 5% slab, including:
- Cooking utensils
- Feeding bottles
- Baby napkins and clinical diapers
- Sewing machines and their parts
This is expected to directly benefit middle-class households and new parents, reducing the cost of essential domestic and childcare products.
4) Agriculture and Rural Sector Support
The GST overhaul also provides a strong boost to the agriculture and rural economy:
- Fertilisers, previously taxed at 12-18%, are now under the 5% slab
- Tractor tyres and spare parts also shift to 5%, down from 18%
- Entire tractors move from 12% to 5%
- Agricultural implements including soil preparation, cultivation, harvesting and threshing machinery now attract only 5%
In addition, bio-pesticides, micronutrients, drip irrigation systems, and sprinklers have also been brought into the 5% bracket, helping farmers lower their operational costs.
5) Healthcare and Insurance
Health-related products and services have seen one of the most significant GST relaxations:
- Thermometers and diagnostic equipment such as glucometers and test strips move to the 5% category
- Medical-grade oxygen and diagnostic reagents also see tax reduction
- Corrective spectacles and lenses now attract only 5%, down from 12% or higher
Most notably, individual health and life insurance policies will now be exempt from GST altogether. This change could improve insurance penetration and provide financial protection to a larger section of the population.
6) Education Materials
All basic educational tools and materials are now entirely GST-free. Items such as maps, charts, globes, pencils, sharpeners, crayons, pastels, exercise books, notebooks, and erasers were earlier taxed at 12%, but will now attract 0% GST.
This exemption is aimed at supporting students and educational institutions by reducing the cost of learning materials.
7) Electronics and Appliances
Several electronic appliances and gadgets have seen their GST rate lowered from 28% to 18%. This includes:
- Air conditioners
- Televisions (above and below 32 inches)
- LED and LCD monitors
- Dishwashing machines
- Projectors
The reduction is expected to make these products more accessible to a wider population and give a push to the electronics and white goods market.
8) Automobiles
The automobile industry is one of the biggest beneficiaries of the rate reduction:
- Petrol, hybrid, LPG, and CNG vehicles (not exceeding 1200 cc and 4000 mm in length) now fall under the 18% slab, reduced from 28%
- Motorcycles up to 350 cc and three-wheelers are also covered under this slab
Manufacturers have already begun announcing price cuts, making passenger vehicles more affordable for middle-class buyers and improving overall consumer sentiment.
9) Other Sectors
A number of additional sectors have received relief through GST rate reductions:
- Renewable energy devices and equipment
- Toys and sporting goods
- Leather products and wood-based furniture
- Handicrafts, art items, and traditional artisan goods
- Construction materials such as marble blocks and granite slabs
These items now fall under the 5% slab, supporting labour-intensive and environmentally sustainable sectors.
WHAT GETS COSTLIER?
While most goods have seen tax relief, some categories will continue to face high taxation.
- Sin Goods and Luxury Products
Products such as pan masala, gutkha, cigarettes, bidis, chewing tobacco, and zarda will continue to be taxed at high rates. These items remain under the 28% GST slab but are also subject to a compensation cess, keeping the effective tax rate closer to 40%.
In addition to the existing tax structure, these goods will now be taxed based on Retail Sale Price (RSP) instead of transaction value, a move aimed at tightening enforcement and preventing under-invoicing.
- Sweetened and Flavoured Beverages
All sweetened or flavoured drinks, including aerated waters and soft drinks, will now attract a 40% GST rate, up from the previous 28%. This move aligns with global practices aimed at discouraging excessive sugar consumption and promoting healthier dietary habits.
- High-End Automobiles and Luxury Goods
Luxury vehicles such as large sedans, SUVs, and motorcycles exceeding 350 cc engine capacity, along with yachts and private jets, will also fall under the 40% GST bracket. This ensures that taxation on high-income discretionary spending remains robust.
ECONOMIC AND FISCAL IMPLICATIONS
The Finance Ministry has acknowledged that the reforms could result in a short-term revenue loss, potentially ranging between ₹48,000 crore and ₹93,000 crore. However, the government is optimistic that increased consumption, broader compliance, and enhanced tax buoyancy from sin and luxury goods will help offset the shortfall.
Industry experts have welcomed the reforms for their simplicity and consumer-friendliness. However, sectors such as FMCG and textiles have requested clarity on selling pre-packaged goods under old pricing, expressing concerns over packaging waste and compliance issues.
CONCLUSION
The introduction of GST 2.0 marks a pivotal moment in India’s fiscal policy and tax administration. By significantly reducing the tax burden on essential goods, healthcare, education, and rural inputs, the government has taken a strong step toward creating a more inclusive and consumption-driven economy.
While challenges remain especially for businesses adjusting to new pricing and compliance mechanisms the long-term outlook appears positive. With affordability improving across key sectors, the GST overhaul has the potential to enhance purchasing power, stimulate demand, and foster equitable growth across India’s diverse economic landscape.
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