India’s Goods and Services Tax (GST) regime saw a significant change as Next-Gen GST reforms took effect on September 22, 2025. The reforms bring in a simpler structure, moving away from the earlier four main slabs (5%, 12%, 18%, 28%) to two main rates: 5% and 18%, and a special 40% slab for luxury and sin products. Daily necessities stay at the 0% exempt rate.
Impact on consumers
Daily Necessities: Food items in packets, personal care items (shampoo, soap), and footwear are now 5% taxed, hence cheaper. Indian bread, paneer, and UHT milk are now zero-rated (0% GST).
Auto and Electronics: Durable household items such as television sets, air conditioners, refrigerators, and small cars now pay 18% GST, compared to the earlier 28% GST.
Health and Education: 33 essential medicines are now exempt (0% GST), and the bulk of other medicines and medical equipment is charged 5%. Life and personal health insurance premiums are now fully exempt (0% GST), with the potential to save policyholders as much as 18% on premiums. Basic school learning items such as erasers, pencils, and notebooks are exempt.
Services: Hotel nights of up to ₹7,500 per night are taxed at 5% instead of before, cutting travel expenses. The gyms, salons, and yoga studios also get their GST reduced to 5%.
Impact on businesses
Simplified Structure: Reducing the GST to mostly two slabs (5% and 18%) makes the GST structure simpler, decreasing complexity and possibly making compliance easier for businesses.
Manufacturing and Exports: Rate cuts on important inputs for industries such as textiles (man-made fabric and yarn now at 5%) and fertilizers (inputs now at 5%) are likely to enhance domestic manufacturing competitiveness and aid exports.
MSMEs and Startups: Reduced GST rates on commodities such as handicrafts and leather goods, coupled with ease of processes, are designed to bring down costs and promote growth in Micro, Small and Medium Enterprises (MSMEs).
Construction Sector: The cut in GST on cement and construction materials from 28% to 18% is likely to reduce housing and infrastructure project costs, which may give the construction sector a boost and create employment.
Key changes
40% GST Slab: A new 40% GST slab has been brought in for certain luxury items and “sin” items such as tobacco, luxury cars, and aerated drinks replacing the old 28% slab with cess. Tobacco items will remain at the current rates for a short while until all liabilities towards compensation cess are paid.
Inverted Duty Structure Correction: The reforms seek to correct the problem of inverted duty structures, in which input taxes are greater than output taxes, which will help manufacturers’ cash flow.
These reforms, in some views a “GST Bachat Utsav” (GST Savings Festival), seek to simplify India’s tax system, make it fairer and more growth-friendly, ultimately helping consumers and businesses.
