The centre framed the rationalisation as a growth-supportive simplification, replacing a confusing four-tier grid with a cleaner two-rate design.
New Delhi : India will roll out a simplified Goods and Services Tax (GST) structure from September 22, 2025, consolidating the indirect tax into two primary slabs—5% and 18%—and a special top rate of 40% for ‘sin’ and super-luxury goods. The move was cleared at the 56th GST Council meeting chaired by Finance Minister Nirmala Sitharaman and is aimed at boosting consumption and easing compliance amid a softer domestic outlook.
Under the overhaul—informally dubbed “GST 2.0”—the Council has abolished the 12% and 28% slabs, migrating most items previously taxed there into either the 5% or 18% brackets. The government also widened the list of zero-rated essentials to cushion household budgets. A new 40% rate replaces the earlier cess construct for products considered harmful or ultra-premium (e.g., cigarettes, certain tobacco products, carbonated beverages, and high-end automobiles). Item-wise fitments have been notified in broad categories; detailed rate schedules will accompany the statutory notifications before the rollout.What gets cheaper — and what won’t
According to the Council’s decisions and ministerial briefings, a swathe of consumer items move lower: several FMCG staples—including personal care products like toothpaste and shampoos—shift down into 5%; many durables and small cars drop from 28% to 18%; and various TVs and air-conditioners also slide into 18%. Footwear thresholds for the concessional rate have been relaxed to bring more affordable pairs under 5%. Specific exemptions were also announced for individual life and health insurance policies. Conversely, products captured in the new 40% bucket will see higher tax incidence, consistent with the regime’s public-health and de-merit objectives.
Why now
New Delhi framed the rationalisation as a growth-supportive simplification, replacing a confusing four-tier grid with a cleaner two-rate design. The government also linked the change to broader economic headwinds and the need to restore consumer momentum.
Implementation & next steps
Effective date: September 22, 2025 (most rate changes).
Notifications & fitment lists: To be issued ahead of the go-live, clarifying HSN/Service categories and any transitional provisions.
Compliance easing: Alongside rate cuts, the Council indicated process tweaks—quicker registration for low-risk firms and faster refunds—to reduce friction for MSMEs.
States & compensation:
Economists see the shift as tax-buoyant for volumes even if initially revenue-negative, with potential gains from improved compliance and stronger consumption—especially in FMCG and entry-segment durables/auto. The 40% sin/super-luxury rate maintains policy space to discourage harmful consumption without complicating the core grid. For businesses, the simplification should reduce classification disputes (the Council cited anomalies like multiple rates for similar items) and ease pricing decisions going into the festive quarter.
According to the Council’s decisions and ministerial briefings, a swathe of consumer items move lower: several FMCG staples—including personal care products like toothpaste and shampoos—shift down into 5%; many durables and small cars drop from 28% to 18%; and various TVs and air-conditioners also slide into 18%. Footwear thresholds for the concessional rate have been relaxed to bring more affordable pairs under 5%. Specific exemptions were also announced for individual life and health insurance policies. Conversely, products captured in the new 40% bucket will see higher tax incidence, consistent with the regime’s public-health and de-merit objectives.
Why now
New Delhi framed the rationalisation as a growth-supportive simplification, replacing a confusing four-tier grid with a cleaner two-rate design. The government also linked the change to broader economic headwinds and the need to restore consumer momentum.
Independent estimates suggest the rate cuts could involve a revenue impact of roughly ₹93,000 crore; other analyses peg the hit near $16 billion (≈0.4% of GDP)—figures that may evolve once final fitments and demand effects are known. States have flagged compensation concerns, with some seeking safeguards against short-term revenue loss; talks on mechanisms and timelines are continuing.
Implementation & next steps
Effective date: September 22, 2025 (most rate changes).
Notifications & fitment lists: To be issued ahead of the go-live, clarifying HSN/Service categories and any transitional provisions.
Compliance easing: Alongside rate cuts, the Council indicated process tweaks—quicker registration for low-risk firms and faster refunds—to reduce friction for MSMEs.
States & compensation:
Deliberations continue; several states have publicly sought revenue backstops.
The big picture
Economists see the shift as tax-buoyant for volumes even if initially revenue-negative, with potential gains from improved compliance and stronger consumption—especially in FMCG and entry-segment durables/auto. The 40% sin/super-luxury rate maintains policy space to discourage harmful consumption without complicating the core grid. For businesses, the simplification should reduce classification disputes (the Council cited anomalies like multiple rates for similar items) and ease pricing decisions going into the festive quarter.
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