Government Rolls Out New GST Structure As ‘Diwali Gift’; Slashes Rates On Essentials

The Union government launches sweeping Goods and Services Tax (GST) reforms, cutting rates on essentials and simplifying compliance.

Announced as a ‘Diwali gift’ by Prime Minister Narendra Modi and rolled out by Finance Minister Nirmala Sitharaman, the move reduces the number of slabs from four to two and introduces a direct higher levy on luxury and sin items.

Under the new regime, effective Monday, GST operates with just two primary slabs, 5% and 18%.

Luxury and sin goods face a straight 40% tax without an additional cess. Items previously taxed at 12% or 18% now mostly shift to 5% or nil, while products in the 28% bracket either move to 18% or the new 40% category.

This overhaul, termed ‘GST 2.0’, seeks to simplify the tax structure introduced eight years ago to unify central and state levies.

Daily-use products such as UHT milk, butter, ghee, dry fruits, sugar, and packaged foods have seen tax reductions to 5% or zero.

Fertilisers, seeds, life-saving drugs, books, footwear, textiles and many household items also fall into the lower slab. Entry-level electronics, small cars, motorcycles under 350cc, and consumer goods like shampoo, toothpaste and hair oil now attract just 18% GST.

Higher Levy on Luxury & Sin Goods

Pan masala, gutkha, cigarettes, high-capacity motorcycles, and certain leisure services now attract 40% GST.

Coal is taxed at 18% instead of 5%, raising input costs for coal-based industries. Restaurants in specified premises lose the option of 18% with ITC, closing a compliance gap.

Automobile companies, including Toyota, Maruti Suzuki, Mahindra, and Hyundai, have announced price cuts of up to ₹3.34 lakh on various models. FMCG majors such as HUL, Emami and P&G, along with dairy brands like Amul and Mother Dairy, have also pledged reductions in retail prices.

Sitharaman estimates the reforms will inject about ₹2 lakh crore into the economy.

Analysts, including Morgan Stanley and CII, predict that the rate cuts will lift demand, especially among low- and middle-income households, setting off a consumption-driven growth cycle.

SBI Chairman CS Setty notes that lower prices on essentials will free up disposable income, spurring both demand and credit expansion.

This reform package delivers on Modi’s Independence Day promise of a ‘great gift’, aiming to widen the safety net for households and reinvigorate consumption-led growth ahead of the festive season.

Also Read: GST 2.0 Triggers Historic Car Sales Surge On Navratri’s Opening Day