India’s Goods and Services Tax (GST), introduced in 2017, was a complicated maze of four main rates (5%, 12%, 18%, 28%), plus extra cess and carve-outs, burdening taxpayers and businesses with confusion.
Now, the government is simplifying that structure—cutting it down to just two main slabs (5% and 18%), with special carve-outs:
- 0% (Nil) for some critical essentials.
- 40% on sin and luxury goods.
2. When Does It All Start?
This overhaul kicks in from 22 September 2025, just in time for the festive season, making it feel like India’s biggest Diwali gift yet.
3. What Slabs Cover What?
| GST Slab | What It Covers |
|---|---|
| 0% (Nil) | Life-saving drugs, cancer & rare-disease treatments, notebooks, paneer, roti, life & health insurance. |
| 5% | Daily essentials like soaps, shampoos, toothpaste, cooking oils, ghee, bicycles, agri tools, medical devices; also EVs, renewable energy items, spectacles, tractor parts. |
| 18% | Goods like TVs, ACs, small cars (<1200cc petrol / <1500cc diesel), 2-wheelers (<350cc), cement, steel—formerly in 28% slab. |
| 40% | Luxury/sin goods: cigarettes, pan masala, sugary drinks, big motorcycles, luxury vehicles, casinos, online gaming, IPL tickets. |
Special Updates:
- Hotels under ₹7,500/night now taxed at 5%, making staycations cheaper; higher-end remains at 18%.
- Insurance policies are now essentially tax-free, reducing premiums by ~15% .
4. What Does This Mean for You and the Economy?
For Consumers:
- Lower prices on everyday products like food, toiletries, insurance, appliances, and personal healthcare items.
- Cheaper stays and travel.
- Less paperwork confusion at billing time.
For Businesses & MSMEs:
- Faster registration (within 3 days); refunds, especially in inverted duty cases, cleared in about 7 days.
- Less disputes over classifications—no more popcorn/paratha confusion.
For the Economy:
- Revenue loss estimated between ₹48,000 crore to ₹93,000 crore—but expected to be recouped through rising consumption and boosted demand.
- Could support GDP growth by 0.5%–1.1% over time, easing inflation and stimulating sectors like auto, housing, insurance, consumer goods.
For States:
- Concerns about revenue shortfalls—several opposition-ruled states are asking for compensation mechanisms since the earlier cess safety net ended in June 2022.
5. Why GST 2.0 Was Needed
- Simplifying compliance: Fewer slabs mean fewer mistakes, disputes, and headaches.
- Fixing structure flaws: Addressing inverted duty issues where raw inputs were taxed more than finished products.
- Fuel for growth: Lower tax on essentials and aspirational goods boosts consumer spending. Higher tax on sin goods ensures social responsibility and revenue balance
GST 2.0 is about making “needs” cheaper and “wants/evils” costlier—while cleaning up red tape and balancing the books. Think of it as GST with a soul—caring for everyday needs, cutting clutter, and nudging us toward a smarter economy
GST 2.0: Frequently Asked Questions (FAQ)
1. When do the new GST rates kick in?
Almost all rate changes—except for certain tobacco and related products—will be effective from September 22, 2025, the first day of Navratri.
2. Which GST slabs remain, and what’s new?
The GST structure is now streamlined to:
- 0% (Nil) – for essentials like lifesaving drugs, paneer, roti, and insurance
- 5% – for daily-use items (soaps, ghee, packaged foods, bicycles, agricultural goods)
- 18% – for goods previously at 28% (e.g., TVs, small cars, ACs, cement)
- 40% – newly introduced for sin and luxury goods (like tobacco, sugary drinks, luxury vehicles)
3. Are insurance premiums exempt from GST now?
Yes! All individual life and health insurance policies are now fully exempt from GST—great relief for households.
4. Do medicines get GST exempted?
- About 33 lifesaving drugs—including those for cancer and rare diseases—are now at 0% GST.
- Other medicines—but not all—will attract 5% GST rather than being wholly exempted.
This careful stance ensures manufacturers can still claim input tax credits, keeping production costs stable.
5. Are everyday food and household items cheaper now?
Absolutely. Many items have moved to Nil or 5% GST, including:
- Nil: paneer, rotis, UHT milk, Indian breads, chenna.
- 5%: butter, ghee, noodles, chocolates, biscuits, toothpaste, soaps, kitchenware, bicycles.
6. What about cars, bikes, and electronics?
- Smaller vehicles (cars <1,200 cc petrol / <1,500 cc diesel, bikes <350 cc) → now taxed at 18% (down from 28%).
- Big/big-engine vehicles, luxury bikes, yachts, and other high-end items → 40% GST, with no additional cess.
- TVs, ACs, dishwashers, cement, steel → all moved to 18% – formerly at 28%.
7. What about sin and luxury items?
A flat 40% GST now applies to:
- Tobacco products (once compensation cess loans are repaid)
- Sugary, carbonated beverages
- IPL tickets, casinos, online betting/gaming, and similar lifestyle luxuries.
8. Has the GST registration/refund process changed?
Yes! There are reforms underway for faster:
- GST registrations, via auto-approval within three working days for low-risk applicants
- Provisional refunds under inverted duty structure, with 90% processed swiftly.
9. What happens to Input Tax Credit (ITC) for pre-change purchases?
No worries—purchases made before the rate change still qualify for ITC, as per standard CGST Act norms.
10. Any special rules for IOC’s (e-way bills) in transit?
No need to cancel or reissue them. E-way bills already in transit remain valid despite the tax changes.
