India's Goods and Services Tax (GST) will see its biggest overhaul since introduction in 2017 as new rates from September 22, 2025, have been introduced. The action is part of GST 2.0 reforms passed during the September 3, 2025, 56th GST Council meeting.
The previous four-slab GST rate structure of 5%, 12%, 18%, and 28% is being streamlined into three wide slabs:
5% (Merit rate): For essential goods, priority consumer items, and priority sectors of agriculture and health
18% (Standard rate): For most other goods and services
40% (Demerit rate): A new higher rate of taxation for sin products and high-end items such as pan masala, aerated water, luxury vehicles, and casinos.
Most frequently consumed items like hair oil, toothpaste, milk, and packaged food will have their prices cut from 12% or 18% to 5%, thus making them more affordable.
GST on individual health and life insurance is exempted (0%).
Electronics, small cars, and motorbikes below 350cc move to the 18% slab from the higher slab.
Luxury goods and sin will be taxed very heavily at 40%, as per the government's "sin tax" policy.
Tobacco products will also keep their cess and stay out of the 40% slab for the moment.
The new GST rates and exemptions will be applicable from September 22, 2025. Coincidentally the dates are colliding with the Navratri 2025.
Shoppers will notice lower prices for a number of ordinary household items as low GST rates reduce the burden of taxation.
Products in health, education-related stationery, agriculture machinery, and cars will be cheaper.
Sinful and indulgence goods will be more expensive, which might deter consumption of unhealthy foods.
Businesses will benefit from a lower tax structure and simplified reporting, and could lead to economic growth and rising demand.
The government forecasts short-run revenue loss but predicts this will be compensated by higher consumption and better tax compliance.