The new two-slab structure (5% and 18%) for India's GST reform in 2025 would streamline taxes starting on September 22
A significant revision to India's Goods and Services Tax (GST) system went into effect on September 22, 2025, lowering the number of tax slabs from four to two primary rates: 5% and 18%. A specific 40% slab is introduced for luxury and sinful goods, such as high-end cars and tobacco products, while taxes on everyday and basic goods are lowered, making them more affordable for customers. This simplification is a major step in India's tax policy reform, with the goals of increasing domestic consumption, facilitating compliance, and helping the middle class and average person.
MARKET NEWS
9/4/20252 min read
In an effort to streamline the tax code and help the average citizen, the Goods and Services Tax (GST) Council has approved a major change to India's GST rate structure that will take effect on September 22, 2025. The present four main tax slabs—5%, 12%, 18%, and 28%—are reduced to a simplified two-rate system of 5% and 18% under the revised GST structure. A special 40% slab is applied to a few luxury and sinful goods.
The new GST regime classifies goods and services into two main tax slabs:
5% off on necessities and everyday things used by the average person, such as pharmaceuticals, small automobiles, bicycles, and their parts, Indian breads, UHT milk, paneer, and personal care items like toothpaste, toothbrushes, soaps, and hair oil.
18% is the typical rate for general consumption for the majority of other products and services.
For a limited number of high-end products, including luxury cars (with engines larger than 1200cc gasoline and 1500cc diesel), tobacco products (such as pan masala, gutkha, cigarettes, and chewing tobacco), and some other sin goods, a special 40% slab is suggested. In order to deter consumption and support public welfare funding, these luxury and sinful items will continue to be subject to increased levies.
Items Now Cheaper
The GST rates on a number of common commodities were decreased, making them more accessible to customers. Particularly, dairy items like condensed milk, butter, and cheese now pay 5% GST instead of 12%, while UHT milk and paneer are now in the zero-tax band. Their tax burden has significantly decreased as a result of household goods including bicycles, kitchenware, tableware, and personal hygiene necessities moving mostly to the 5% slab.
Implementation and Impact
The new GST slabs will cover all goods except tobacco and allied products, which will change later after the compensatory cess duties are fully fulfilled. They will go into effect on September 22, 2025, which is when the Navratri celebrations begin. It is anticipated that this tax simplification will make compliance easier, lessen the ripple impact of taxes, and increase domestic consumption by bringing down the price of everyday items.
The common man and middle class have been the focus of these reforms, which have greatly reduced their tax burden, according to Finance Minister Nirmala Sitharaman. The GST Council gained overwhelming support from states for this reform, demonstrating a common resolve to make the tax system more citizen-friendly and encourage economic growth.
Special Notes on Compensation Cess and Sin Goods
Until the government settles its outstanding compensation debt, tobacco products and other sin items will be subject to the current GST and compensation cess rates. After that, they would be subject to the new 40% slab. This strategy strikes a compromise between public health concerns and income requirements.