In a landmark decision on September 3, 2025, the 56th GST Council meeting delivered sweeping reforms—a turning point for India’s indirect tax regime. Chaired by Finance Minister Nirmala Sitharaman, the Council unanimously approved a streamlined Goods and Services Tax (GST) model: a dual-rate framework of 5% and 18%, complemented by a new 40% slab for select “sin” and luxury products.

India’s “Next-Gen GST”: A Simplified Tax Structure for a Stronger Economy

Why This Reform Matters

• This marks the most significant overhaul in India’s eight-year GST history, poised to simplify compliance, reduce litigations, and rectify inverted duty structures.
  
• It follows Prime Minister Modi’s Independence Day announcement promising GST rationalisation by Diwali.
  
• Industry groups, including CII, praised the move for enhancing predictability and consumer relief.

What Now Costs Less

• Basic necessities: Hair oil, soaps, shampoos, toothbrushes, toothpaste, kitchenware, and bicycles will now attract just 5% GST.
  
• Staples: UHT milk, paneer, chhena, all Indian breads (like roti/paratha) have been moved to nil GST.
  
• Food and beverages: Items like butter, ghee, sauces, pasta, noodles, chocolates, coffee, cornflakes, dry fruits, and namkeens now fall under the 5% rate.
  
• Consumer durables and vehicles: GST on ACs, dishwashers, TVs, small cars (≤1,200cc petrol / 1,500cc diesel, and <4m length), motorcycles up to 350cc—all reduced to 18%.
  
• Insurance & travel: Life & health insurance are now GST-free, while economy class airline tickets and hotel rooms up to ₹7,500 are taxed at 5%.
  
• Health & agriculture: Several life-saving drugs, diagnostic tools, medical devices, fertilizers, farming machinery, and biopesticides now attract nil or 5% GST.
  

What’s More Expensive

• Sin and luxury goods now face a steep 40% GST—the new top slab. This includes:
  
  • Tobacco products, pan masala, gutkha, cigarettes (post repayment of compensation cess loans)
    
  • Sugar-sweetened, carbonated, and caffeinated drinks
    
  • High-end vehicles: SUVs, luxury cars (>1,200cc petrol or >1,500cc diesel), large motorcycles, yachts, aircraft, racing cars
• Coal, biodiesel (non-blended), and premium textiles (above ₹2,500) now attract 18% GST, adding to the list of items facing upward revision.
  

When Do These Changes Take Effect?

Most of the new rates will be effective from September 22, 2025—the first day of Navratri. It gives businesses a short window to recalibrate pricing and systems.

Economic Implications

• Revenue impact: The reform is expected to result in a net fiscal implication of approximately ₹48,000 crore (on FY23-24 consumption levels)—a manageable trade-off given its growth potential.
  
• Macroeconomic boost: Analysts estimate it could reduce inflation by up to 1.1 percentage point, revive consumption, and add up to 0.5 percentage point to GDP growth over time.
  
• Recovery for sectors: Consumer goods, automotive, appliances, insurance, and agriculture are direct beneficiaries—Maruti, LG, LIC, and fertilizer sectors may gain.
  

Next-Gen GST – Final Thoughts

India has embraced a bold “GST 2.0,” shedding complexity and redefining priorities. The move reflects a balance between consumer relief and discouraging harmful consumption, all while injecting fresh momentum into growth sectors. As Navratri nears, this “Diwali advance” may brighten festive spirits—both for consumers and the economy. Get in touch with Pitchers Global to know more!