GST revision: What gets cheaper and costlier from 22 September

The Goods and Services Tax (GST) Council has cleared a sweeping reform of India’s indirect tax system, reducing the current multi-slab structure to a simplified two-rate regime. From 22 September 2025, goods and services will largely fall under either a 5 per cent or 18 per cent GST slab, while sin and luxury products will attract a much steeper 40 per cent levy.

What gets cheaper

• The GST slabs have been rationalised into a 5 per cent lower slab and an 18 per cent standard slab.

• Essential goods and daily-use items such as ultra-high temperature (UHT) milk (now tax-free), paneer, condensed milk, butter, ghee, cheese, parathas, pizza bread, khakhra, and staples like pasta, starches, biscuits, chocolates, and dry fruits will attract the lower 5 per cent or nil GST rate.

• Grocery items including refined sugar, syrups, confectionery, vegetable oils, edible spreads, meat and fish preparations, and popular snacks like namkeens and bhujia will see taxes reduced to 5 per cent.

• Many personal care items like hair oil, shampoo, toothpaste, soap, talcum powder, and cosmetics now attract 5 per cent GST, reduced from higher slabs.

• Common use goods such as school supplies (erasers, maps, exercise books), utensils, bamboo furniture, bicycles, and textiles also have lowered rates.

• Small cars, two-wheelers up to 350 cc, and hybrid vehicles will become cheaper as the GST on these falls from 28 per cent to 18 per cent. Electric vehicles remain at 5 per cent.

What gets costlier

• The GST Council has introduced a 40 per cent slab for "sin goods" and luxury products, keeping them highly taxed to discourage consumption and generate higher revenues.

• Sin goods include pan masala, gutkha, cigarettes, bidi, chewing tobacco, and unmanufactured tobacco, which will continue under current GST plus compensation cess until loan obligations are met, then moved to 40 per cent.

• Sugary and flavoured beverages, including aerated drinks with added sugar and caffeinated or non-alcoholic drinks, have their GST increased from 28 per cent to 40 per cent.

• Luxury vehicles including petrol cars over 1200cc, diesel cars over 1500cc, motorcycles over 350cc, yachts, aircraft for personal use, and racing cars are also subjected to the 40 pr cent GST.

• Tobacco and related products will remain under the highest tax bracket, as these are considered harmful for public health and targeted through sin taxes.

The government has justified the steep tax on sin goods as both a public health and fiscal measure. Economists note that demand for such products is relatively inelastic, ensuring that higher taxes continue to generate substantial revenue for welfare spending while discouraging consumption.

The decision followed heated discussions during the 56th GST Council meeting on 3–4 September, where opposition-ruled states pressed for stronger safeguards on revenue.

Himachal Pradesh, Jharkhand, Kerala, Punjab, Tamil Nadu, Telangana, West Bengal and Karnataka argued that the removal of the 12 per cent and 28 per cent slabs could deprive them of significant income unless a robust compensation mechanism was put in place.

Several states cautioned that companies should not absorb the benefit of lower tax rates as additional profit but pass on the relief to consumers. They also sought clarity on whether the proceeds from the new 40 per cent slab on luxury and sin goods would flow equitably to state governments.

The Centre’s earlier system of compensating states, financed through cess collections, ended in June 2022. With many states still struggling with debt, particularly Punjab and West Bengal, the prospect of revenue shortfalls has triggered demands for a binding compensation formula.

While BJP-ruled states such as Andhra Pradesh signalled support for the rationalisation, concerns remain widespread about fiscal losses. Experts suggest consumption-driven states may benefit from a demand boost under lower GST rates, but heavily indebted states risk worsening deficits without assured transfers.

The reform, dubbed GST 2.0, represents the most significant restructuring of the tax regime since its launch in 2017. Its success now hinges on striking a balance between consumer relief, state revenue security and long-term fiscal stability.