India’s indirect tax system is going through its biggest change since the introduction of GST in 2017. The GST Reform Bill 2025, popularly known as GST 2.0, will officially roll out from September 22, 2025, just before the festive season.
This reform is designed to make the tax system simpler, fairer, and more predictable for businesses and consumers. Let’s explore what GST 2.0 is, the new tax slabs, what becomes cheaper or costlier, and how it impacts the economy.
Why GST 2.0 Was Needed
Over the years, India’s GST structure had four major slabs – 5%, 12%, 18%, and 28%. While it brought uniformity compared to pre-GST taxes, the multiple slabs often created confusion, disputes, and compliance hurdles.
For example:
- Is a chocolate-coated biscuit taxed at 18% or 28%?
- Why should soaps be taxed at 18% when other essentials are cheaper?
Economists and businesses demanded a cleaner structure. The government finally responded with GST 2.0, which reduces slabs and simplifies classification.
New GST Rates Under GST 2.0
From September 22, 2025, India will shift to just three slabs:
| Old GST Slabs | New GST Slabs (2025) |
|---|---|
| 5%, 12%, 18%, 28% | 5%, 18%, 40% |
5% → Essentials and daily-use items
18% → Standard goods and services
40% → Luxury and sin goods (e.g., high-end cars, sugary drinks, yachts)
This means the 12% and 28% slabs are removed, and items in those categories will now move into either 5%, 18%, or 40% depending on their classification.
What Gets Cheaper With GST 2.0?
Consumers will directly benefit as many everyday essentials shift into lower GST brackets. Some examples:
- Food & Household Items → Soaps, shampoos, toothpaste, packaged snacks now at 5% instead of 12–18%.
- Healthcare → Essential medicines, diagnostic kits, thermometers, and life insurance premiums will now have nil or 5% GST.
- Education Products → Notebooks, maps, crayons, and pencils will become GST-free.
- White Goods → Refrigerators, ACs, washing machines, and TVs now at 18% instead of 28%.
- Automobiles → Small cars, bikes, and EV parts moved to 18% GST from 28%.
Households save on groceries and durable goods, while industries like FMCG and automobiles expect a demand boost.
What Gets Costlier?
A new 40% GST slab is introduced for “sin and luxury goods.”
This includes:
- Sugary beverages → Energy sodas, aerated drinks, high-sugar products
- Luxury purchases → Imported luxury cars, yachts, private jets
The goal is to discourage harmful consumption while taxing luxury spending more heavily.
Economic Impact of GST 2.0
Experts believe GST 2.0 could reduce inflation by 1%–1.1%, as essentials and household products get cheaper.
- For consumers → Daily savings on essentials
- For businesses → Simpler compliance, fewer disputes, and cost reductions in sectors like FMCG and autos
- For the government → Short-term revenue loss (~₹48,000 crore) but higher demand and better compliance in the long run
This reform aims to revive consumption, reduce inflationary pressures, and stabilize India’s indirect tax system.
GST Calculation Example
Suppose you purchase:
- Refrigerator worth ₹30,000 (now 18%) → ₹5,400 GST
- Groceries worth ₹2,000 (now 5%) → ₹100 GST
- Health insurance premium of ₹20,000 (now NIL) → ₹0 GST
Total GST paid = ₹5,500 instead of much higher under the old system.
Instead of doing manual calculations, use our free GST Calculator to instantly check how GST affects your bills.
Winners and Losers of GST 2.0
Winners:
- Consumers – Lower prices on essentials and healthcare
- FMCG sector – Boost in demand for daily products
- Automobile sector – Small cars and EVs become more affordable
- Insurance & healthcare – More accessible with lower costs
Losers:
- Luxury auto makers – SUVs and imports remain expensive
- Sugary beverage companies – Higher taxes may reduce demand
Also See: GST Rates on Hotel Rooms
FAQs
What are the new GST slabs under GST 2.0?
GST 2.0 introduces three slabs: 5% for essentials, 18% for standard goods and services, and 40% for luxury and sin goods.
When will the new GST rates come into effect?
The new GST rates will be applicable from September 22, 2025.
Which items will become cheaper under GST 2.0?
Essentials and household items such as packaged food, soaps, medicines, insurance, appliances, small cars, two-wheelers, bicycles, and auto parts will now attract lower GST, making them more affordable.
Final Thoughts
The GST 2.0 reform is one of the most significant changes in India’s tax system since 2017. By shifting to a simpler 5%-18%-40% structure, it balances affordability for essentials while ensuring luxury and harmful goods remain heavily taxed.
For consumers, this means lower household expenses. For businesses, it means less confusion and smoother compliance. And for the economy, it promises revived demand and controlled inflation.