In a landmark decision, the GST Council has approved a major restructuring of India’s tax system, introducing what’s being called ‘GST 2.0.’ These reforms simplify the existing framework and are set to make a wide range of goods and services more affordable for the common person. The changes will be effective from September 22, 2025.
What’s Getting Cheaper?
The most significant change is the simplification of the tax structure, which will lower the price of many everyday items. The old four-tier system (5%, 12%, 18%, and 28%) has been streamlined into two main rates: a 5% ‘merit’ rate and an 18% ‘standard’ rate.
Here is a point-by-point comparison of the old versus new rates:
A. Household Essentials: Items previously taxed at a higher rate are now being moved to the lower 5% slab.
- Old Rate: 18% on things like shampoo, hair oil, soap, and toothpaste.
- New Rate: 5% on the same items, leading to a significant price drop.
B. Food and Beverages: The GST on many common food items is being reduced, with some essentials now becoming tax-free.
- Old Rate: 12% to 18% on packaged foods like noodles, chocolates, biscuits, and sauces.
- New Rate: 5% on these items. Additionally, essentials like roti, paratha, paneer, and UHT milk are now completely tax-free (0%), down from 5%.
C. Healthcare and Insurance: This is one of the biggest reliefs for consumers, directly impacting personal finances and well-being.
- Old Rate: 18% on individual health and life insurance premiums.
- New Rate: 0% on these policies, making insurance much more accessible and affordable for everyone.
D. Consumer Durables: Large household appliances are also getting cheaper as their tax rates are cut from the highest slab.
- Old Rate: 28% on large-screen televisions (over 32 inches), air conditioners, and dishwashers.
- New Rate: 18% on these products.
E. Automobiles: The tax on smaller, mass-market vehicles has been slashed to promote sales.
- Old Rate: 28% plus a separate cess on small cars (with engines up to 1200cc for petrol and 1500cc for diesel) and motorcycles (up to 350cc).
- New Rate: 18% on these vehicles, making them more affordable for first-time buyers.
In a decisive and visionary move, the government has enacted a historic overhaul of the GST system, delivering a powerful act of financial relief for every citizen. The new simplified tax structure slashes rates on a vast range of daily essentials, from shampoo and toothpaste to health and life insurance, directly putting more money back into people’s pockets. This strategic move is a clear testament to the government’s commitment to easing the burden on families and empowering consumers. By simultaneously simplifying business compliance and fueling consumer-led demand, these reforms are poised to accelerate India’s economic growth, solidifying its position as a global leader.
