GST Council Slashes Tax Rates: Here’s What Becomes Cheaper for You

New Delhi, September 4, 2025 – In a major overhaul of India’s Goods and Services Tax (GST) regime, the GST Council, chaired by Union Finance Minister Nirmala Sitharaman, announced sweeping tax rate cuts during its 56th meeting on September 3, 2025. The new two-tier tax structure, effective from September 22, 2025, consolidates the existing four slabs (5%, 12%, 18%, and 28%) into two primary rates—5% and 18%—with a special 40% rate for luxury and sin goods. This reform, hailed as a “Diwali bonanza” for the common man, aims to reduce the tax burden, boost consumption, and simplify compliance for businesses.

What Becomes Cheaper?

The GST Council’s decisions bring relief to households, farmers, and small businesses by significantly reducing taxes on everyday essentials, consumer durables, and health-related services. Here’s a detailed look at the items and services that will become more affordable:

Food and Household Essentials

• Nil GST (0%):
  • Ultra-High Temperature (UHT) milk, paneer, chena, khakra, pizza bread, and all Indian breads (roti, chapati, paratha) will now be tax-free, down from 5%.
  • Pencils and crayons, previously taxed at 12%, will also be exempt.
• 5% GST:
  • Everyday items like hair oil, toilet soaps, soap bars, shampoos, toothbrushes, toothpaste, combs, hairpins, tableware, and kitchenware have been slashed from 12% or 18% to 5%.
  • Food items such as butter, ghee, dry fruits, namkeen, biscuits, corn flakes, sugar confectionery, fruit pulp, juice, milk-based beverages, and tender coconut water will now attract a 5% tax rate, down from 12% or 18%.
  • Packaged drinking water (20 liters) and non-aerated drinks also move to 5%.

Consumer Durables and Automobiles

• 18% GST:
  • Air conditioners, TVs (all sizes), dishwashers, refrigerators, and washing machines will see their tax rates drop from 28% to 18%, making these aspirational goods more affordable.
  • Small cars (under 1200 cc for petrol, 1500 cc for diesel) and motorcycles with engine capacities up to 350 cc will also be taxed at 18%, down from 28%.
  • Buses, trucks, ambulances, and all auto parts will now attract an 18% GST rate.

Health and Insurance

• Nil GST (0%):
  • All individual life and health insurance policies, including term life, ULIP, endowment policies, and family health plans, are now exempt from GST, previously taxed at 18%. This move is expected to enhance insurance accessibility and coverage.
  • 33 life-saving drugs and medicines, including cancer drugs, have been shifted from 12% to 0%.
• 5% GST:
  • Spectacles and lenses for vision correction, glucometers, test strips, and thermometers have been reduced from 12%–18% to 5%.
  • Services like health clubs, salons, barbers, fitness centers, and yoga will now be taxed at 5% (without Input Tax Credit), down from 18%.

Textiles, Footwear, and Agriculture

• 5% GST:
  • The manmade textile sector sees a correction in the inverted duty structure, with manmade fiber and yarn reduced from 18% and 12% to 5%, respectively.
  • Footwear and apparel priced up to ₹2,500 per piece will now attract a 5% GST, up from the previous threshold of ₹1,000.
  • Fertilizer inputs like sulphuric acid, nitric acid, and ammonia, as well as biopesticides and natural menthol, will be taxed at 5%, down from 18% or 12%.
  • Handicrafts, marble, and granite blocks also move to the 5% slab.

Hospitality and Other Services

• 5% GST:
  • Hotel accommodations with a daily tariff below ₹7,500 will now be taxed at 5%, down from 12%, boosting tourism and affordability.

What Gets Costlier?

While the focus is on reducing taxes, a new 40% GST slab has been introduced for sin and luxury goods, including:

• Pan masala, gutka, cigarettes, chewing tobacco, and bidis (to remain at 28% plus compensation cess until loans are repaid, then shift to 40%).
• Luxury items like yachts, revolvers, pistols, smoking pipes, helicopters, and high-end cars (above 1200 cc for petrol, 1500 cc for diesel).
• Specified actionable claims like betting, casinos, gambling, horse racing, lotteries, and online money gaming.
• Caffeinated and carbonated beverages.

However, high-end cars will see a net price reduction due to the removal of the compensation cess (17%–22%), despite moving to the 40% slab.

Impact and Industry Response

The GST reforms are expected to have a net revenue implication of ₹48,000 crore, but experts predict increased consumption and compliance will offset this loss. The restructuring is projected to add 60 basis points to India’s GDP while countering the impact of US tariffs on Indian exports. Industry leaders, including the Confederation of Indian Industry (CII), have welcomed the simplified two-slab structure, pre-filled GST returns, and automated refunds, which will ease compliance and reduce litigation.

The dairy industry anticipates higher consumption due to zero GST on UHT milk and paneer, while insurance companies like Star Health and Niva Bupa saw their shares surge by up to 9% following the GST exemption on policies. The real estate sector will benefit from reduced GST on cement (from 28% to 18%), potentially improving developer margins and stimulating housing demand.

Looking Ahead

The new rates, effective from September 22, 2025, align with the festive season, offering consumers significant savings ahead of Navratri and Diwali. The government expects industries to pass on these benefits to consumers, with Revenue Secretary Arvind Shrivastava emphasizing fiscal sustainability. However, some states, like Jammu and Kashmir, have raised concerns about potential revenue losses and are seeking compensation mechanisms.

Prime Minister Narendra Modi, who announced these “next-generation” GST reforms during his Independence Day speech, described the changes as a step toward easing the lives of the common man, farmers, MSMEs, and the middle class. With GST 2.0, India aims to create a more transparent and competitive economy, setting the stage for robust growth.

Stay tuned to YaHind.Com for more updates on how these reforms impact your wallet and the economy!

Sources: Agencies