GST Regime Overhaul: Major Tax Cuts Across 90% of Goods

The Goods and Services Tax (GST) Council has approved the most comprehensive restructuring of India’s GST system since its inception in 2017, cutting taxes on over 90% of goods. The reforms, announced by Union Finance Minister Nirmala Sitharaman after the 56th GST Council meeting, simplify the GST structure into two principal slabs—5% and 18%, with a special 40% tax rate for luxury and sin goods. The new rates will take effect from September 22, 2025.

Largest Tax Reform Since 2017

The GST overhaul aims to boost domestic consumption at a time when India’s exports are facing global headwinds, especially due to increased tariffs from the United States.

Key highlights:

  • Reduction from four slabs (5%, 12%, 18%, 28%) to two slabs (5% and 18%)

  • A special 40% rate for high-end goods and sin products

  • Net revenue implication: ₹48,000 crore based on FY24 consumption data

  • Objective: To stimulate demand, ease compliance, and simplify GST for businesses

Centre’s Push for Consumer and Economic Relief

Finance Minister Sitharaman highlighted that the reforms were aimed at the common man, agriculture, health, and labour-intensive industries:

“This reform is not just about rationalising rates. It’s about ease of living, structural improvements, and stability in the GST regime,” she said.

Prime Minister Narendra Modi called the decision “a Diwali gift” that would simplify taxation, reduce costs, and promote ease of doing business.

States’ Mixed Reactions to Revenue Loss

While all states unanimously agreed to the reform, several expressed concerns over revenue losses:

  • Kerala requested compensation for the anticipated decline in revenue.

  • Jammu & Kashmir CM Omar Abdullah estimated a 10–12% revenue loss amid the region’s economic challenges post-Pahalgam terror attack.

  • BJP-ruled states and NDA allies strongly backed the reforms, calling it a “pro-people move.”

Structural and Administrative Reforms

The GST overhaul also addresses long-standing administrative challenges:

  • GST Appellate Tribunal to start accepting appeals by end-September and hold hearings by December 2025.

  • Simplified registration, return filing, and refund processes.

  • Correction of inverted duty structure and classification issues.

Focus on Households and Key Sectors

Significant relief was announced for households, agriculture, and insurance:

  • Individual life and health insurance policies are now fully exempt from GST.

  • Agriculture machinery, drip irrigation systems, and bio-pesticides will see rate reductions.

  • Household items such as toothpaste, shampoo, and soap have been moved to the 5% tax slab.

Sin Goods to Face 40% Levy

Luxury and “sin” goods will now face a 40% GST rate:

  • Cigarettes, tobacco, gutka, and aerated beverages

  • Luxury motorcycles, private yachts, and personal aircraft

  • Betting, gambling, and online gaming

Expert Views on Implementation

Tax experts welcomed the reform but stressed on operational readiness:

  • Saurabh Agarwal, EY: “This presents an opportunity and responsibility for India Inc. Businesses must prepare for MRP adjustments and manage input tax credits effectively.”

  • Pratik Jain, PwC: “Timing is perfect, ahead of the festive season. However, a provisional refund mechanism is essential to ensure liquidity.”

Complete List of GST Rates

0% GST

  • Life-saving and rare-disease medicines

  • Individual life and health insurance policies

  • Educational supplies (maps, charts, notebooks, etc.)

  • UHT milk, roti, pizza bread, paneer

5% GST

  • Household items: toothpaste, soap, shampoo

  • Butter, ghee, cheese, dairy spreads, namkeens

  • Medical equipment: oxygen, diagnostic kits, glucometers

  • Baby care products: feeding bottles, diapers

  • Agricultural machinery, tractor parts, micro-nutrients

18% GST

  • Small cars: Petrol, diesel, LPG, and CNG vehicles (below 4000 mm)

  • 3-wheelers, motorcycles below 350cc

  • Air conditioners, dishwashers, large TVs

  • Road tractors and heavy vehicles

40% GST

  • Cigarettes, tobacco products, and gutka

  • Aerated and caffeinated beverages

  • Luxury motorcycles (above 350cc), private yachts, personal aircraft

  • Betting, gambling, casinos, and online money gaming

Economic Impact and Next Steps

The GST rationalisation marks a major shift in India’s indirect tax regime. While it is expected to boost consumption and simplify compliance, states’ concerns over revenue loss remain a challenge.
The reforms are positioned as a pro-growth strategy amid global economic volatility and are likely to impact both consumers and businesses significantly ahead of the festive season.

Key Takeaway:

This GST overhaul is India’s boldest indirect tax reform since GST’s 2017 launch, striking a delicate balance between lowering consumer costs and maintaining fiscal health. If successfully implemented, it could set a precedent for other emerging economies in rationalising tax systems.


Location: Pune, Maharashtra, India

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