The GST Council on Wednesday streamlined India’s indirect taxation framework by replacing the existing four GST slabs with just two—5% and 18%. This reform fulfils the long-pending demand of the Indian middle class for a simpler, more affordable tax system.
The eliminated 12% and 28% slabs have seen most of their items shifted to the remaining two categories.
Authorities expect this rationalisation to make a wide array of products cheaper, thereby boosting consumption just as the economy seeks new momentum.
These changes will take effect from 22 September 2025, coinciding with the onset of Navratri.
The GST Council has retained existing rates plus compensation cess on sin goods—such as pan masala, gutkha, cigarettes, zarda, unmanufactured tobacco, and bidis—until compensatory loans are fully repaid.
It has also introduced a 40% levy on luxury and harmful goods, including aerated sugary drinks, and exempted health and life insurance premiums from GST.
Numerous essential items and everyday goods will now be taxed at 5%, boosting affordability:
Moreover, the reform arrives in response to Prime Minister Modi’s Independence Day assurance of a ‘Diwali gift’ to Indian consumers—and has already received broad support from industry and experts.
Policy analysts expect these GST cuts to reduce inflation by 50 to 90 basis points, easing household budgets during the festive season.
FMCG and retail sectors anticipate increased demand as affordability rises, while several companies have already begun reducing prices on key items.
This reform marks a significant stride towards simplifying taxation and fostering inclusive growth. Let me know if you’d like a version focused on a specific industry or region.
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