Photo source: zeenews.india.com
India has rolled out its most sweeping tax reform since 2017, with Finance Minister Nirmala Sitharaman announcing a simplified GST regime that will take effect from September 22, 2025. Branded as “GST 2.0”, the new structure is expected to reduce the burden on consumers while making compliance easier for businesses.
Two Core Slabs, One Luxury Slab
The revamped GST system now operates with only two primary slabs—5% and 18%, replacing the earlier four-tier structure of 5%, 12%, 18%, and 28%. In addition, a special 40% slab has been introduced for luxury and sin goods such as premium cars, large SUVs, cigarettes, and carbonated beverages.
Explaining the rationale, Sitharaman said:
“Simplifying the GST structure and collapsing four slabs into just two—5% and 18%—is a welcome Diwali cheer for middle-class India. This reform will help households keep more money, especially for essentials and high-ticket items.”
Relief on Essentials and Daily-Use Products
Households are among the biggest beneficiaries of GST 2.0. Everyday essentials like roti, paneer, and paratha have been made GST-free (0%). Meanwhile, popular personal care items like soaps, shampoos, and toothpaste now attract just 5% tax, down from 18%.
Sitharaman emphasized the relief this brings:
“The GST rate cuts—choosing only 5% and 18% as primary slabs—will greatly benefit the common man.”
Another major reform is the complete exemption of GST on individual health and life insurance policies, which were earlier taxed at 18%. She highlighted its importance:
“Removing GST from health and life insurance eases the burden on households and encourages families to invest in their security.”
Boost for Automobiles and Industry
The auto sector, which contributes significantly to India’s economy, has also seen favorable changes. Small cars and motorcycles up to 350cc, earlier taxed at 28%, will now fall under the 18% slab, making them more affordable. Similarly, commercial vehicles, ambulances, and trucks have been shifted to 18%, along with auto parts, simplifying taxation for manufacturers and logistics providers.
At the same time, luxury vehicles remain in the higher bracket. Sitharaman noted:
“While essentials are being made affordable, luxury and sin goods must contribute their fair share. That is why a 40% slab is reserved for these categories.”
A Reform for Growth
By restructuring GST into fewer slabs, the government aims to reduce disputes, simplify compliance, and boost demand. The Finance Minister positioned the move as a balanced approach:
“These tax cuts on consumer items are aimed at stimulating domestic demand, while the 40% slab ensures revenue stability.”
With GST 2.0, India has taken a decisive step toward a simpler, fairer, and growth-driven taxation system, giving both households and businesses a reason to celebrate.
