05/09/2025
Based on the recent decisions by the Indian government and the GST Council, significant changes to the GST structure are being implemented, with new rates effective from September 22, 2025. The reforms, often referred to as "GST 2.0," aim to simplify the tax system, reduce the burden on common citizens, and boost economic growth.
Here is a sector-wise breakdown of the new GST relief measures:
1. Goods and Overall Rate Structure
The existing four-slab structure (5%, 12%, 18%, and 28%) is being simplified into a two-slab system: a merit rate of 5% and a standard rate of 18%. Additionally, a new, higher 40% rate has been introduced for certain luxury and "sin" goods. The compensation cess on most goods will be removed.
Goods that will get cheaper:
* Daily use items: Many essential household items that were previously taxed at 12% or 18% will now move to the 5% slab. This includes items like hair oil, toothpaste, shampoos, soaps, butter, ghee, cheese, pre-packaged snacks, and kitchen utensils.
* Electronics and Consumer Durables: Products like air conditioners, televisions (above 32 inches), refrigerators, washing machines, and dishwashers will see their GST rate reduced from 28% to 18%. This is expected to make them significantly more affordable for the middle class.
* Automobiles: The GST on small cars (with engine capacity below 1200cc for petrol and 1500cc for diesel, and length less than 4 meters) and motorcycles with an engine capacity of 350cc and below will be reduced from 28% to 18%. GST on other motor vehicles for the transport of goods, as well as three-wheelers, will also be reduced. The rate on all auto parts will be a uniform 18%.
* Healthcare and Medicine: Individual health and life insurance will now be exempt from GST (nil rate), a major relief for households. The GST on many life-saving drugs, diagnostic kits, and medical devices has also been reduced, with some moving from 12% to 5% or even a nil rate.
* Farming and Agriculture: The GST on agricultural machinery like tractors, as well as on drip irrigation systems, sprinklers, and specific bio-pesticides, has been reduced to 5%. This will help lower farming costs.
* Construction and Housing: The GST on cement has been reduced from 28% to 18%, which is expected to lower construction costs and boost the real estate sector.
* Textiles and Handicrafts: The GST on man-made fibers and yarns has been reduced to 5%, correcting the inverted duty structure in the textile sector. The GST on handicrafts has also been lowered to 5%, supporting artisans.
Goods that will get more expensive:
* Luxury and "Sin" Goods: A new 40% GST slab will be applied to demerit goods such as pan masala, gutkha, to***co products, and aerated drinks. Large luxury cars and SUVs will also face the new 40% GST rate, which is set to replace the existing cess structure.
* Online Gaming: This sector is expected to face the highest tax rate of 40% as it may be reclassified as a demerit good.
2. Services
The GST Council has also rationalized rates for various services, generally moving consumer-facing services to a lower 5% rate and business-to-business (B2B) services to an 18% rate.
* Financial Services: As mentioned, individual health and life insurance premiums will now be tax-exempt.
* Personal Services: Services like gyms, salons, and yoga have been given a lower GST rate to encourage wellness among the youth.
* Job Work: GST on certain manufacturing-linked job work services (for items like umbrellas, pharmaceuticals, and leather) has been reduced from 12% to 5%, which will lower outsourcing costs for these industries. However, other residual job works may see a rate increase to 18%.
These reforms are expected to make a wide range of goods and services more affordable for the common person, boost consumption, and simplify the tax structure. The new rates will be effective from September 22, 2025.
