GST 2.0: Simpler Rates, Cheaper Essentials and What it Means for You

GST 2.0: Two-Slab Tax Structure from Sept 22, Essentials at 5%, Luxury Goods at 40%

India’s indirect tax regime is undergoing its largest transformation since the GST was first introduced in 2017. At its 56th meeting, the GST Council, led by Finance Minister Nirmala Sitharaman, approved a new two-slab structure of 5% and 18%, along with sweeping rate cuts on essentials, farm inputs, healthcare, and household items. 

The changes, effective from September 22, 2025, are designed to reduce costs for ordinary citizens, ease compliance for businesses, and give the economy a fresh boost, while maintaining a 40% tax on luxury and sin goods.

What Changes in the Bill at Home

Households will see immediate relief. Everyday essentials, such as soaps, shampoos, toothpaste, tableware, and bicycles, will now attract a 5% GST. 

Packaged foods, such as namkeens, sauces, pasta, chocolates, coffee, and preserved meat, also show a 5% increase. Big-ticket appliances, including TVs (above 32 inches), air conditioners, and dishwashers, have been reduced to 18% off. 

On the grocery front, UHT milk, labelled paneer, and Indian breads now fall under the nil tax rate, directly easing household budgets.

Homebuilding Gets a Tailwind

The housing and infrastructure sectors gain from lower input costs. Cement has been reduced to 18%, while marble, granite blocks, sand-lime bricks, bamboo flooring, and wooden pallets have been increased to 5%.

These cuts will reduce construction costs, support real estate demand, and create jobs across the building materials and logistics supply chain.

Automobiles: Relief at the Mass End

Small cars, two-wheelers, buses, trucks, three-wheelers, and most auto parts are now subject to 18% GST instead of the earlier higher rate. This makes personal mobility and commercial vehicles more affordable, while also encouraging domestic auto production and exports.

Farming Costs Fall

Farmers are among the biggest beneficiaries. Tractors now fall under 5%, with tyres and parts also at 5%. Harvesters, threshers, sprinklers, drip irrigation equipment, poultry, and bee-keeping equipment have also been reduced to 5%. 

Bio-pesticides and natural menthol follow the same trend. Correcting inverted duties on fertiliser inputs will aid domestic production, lower costs, and reduce import reliance.

Services, Education and Health See Big Cuts

Services used by citizens every day have become more affordable. Hotel stays priced up to Rs. 7,500 per night are now taxed at 5%, while gyms, salons, barbers, and yoga services also move to a 5% tax rate. 
The education sector benefits from items such as exercise books, pencils, crayons, sharpeners, and erasers, which are brought under nil GST. 

Medical costs are also down: 33 life-saving drugs and diagnostic kits now attract no tax, while other medicines, including traditional systems like Ayurveda, are down to 5%. 

Medical oxygen, thermometers, surgical instruments, and corrective spectacles have also been reduced to 5%. Life and health insurance premiums are fully exempt, providing greater social security.

Textiles, Toys and Handicrafts

To strengthen competitiveness, the GST on man-made fibre is now 5%, and man-made yarn is also taxed at 5%. Handicraft products, including idols, statues, paintings, sculptures, wooden, metal, and textile toys, have been cut to 5%, offering relief to artisan communities and supporting rural livelihoods.

Simpler Structure, Faster Refunds, Better Compliance

The shift to just two tax slabs simplifies compliance and reduces confusion. Filing processes have been streamlined, refunds are being issued faster, and compliance costs have been reduced, helping MSMEs and startups manage their working capital more effectively. 

Finance Minister Sitharaman said the reforms would put around Rs. 2 lakh crore back into people’s hands, directly boosting consumption.

Will It Raise or Lower the Deficit?

The Council expects that lower rates and a simpler system will expand compliance and widen the tax base. GST revenues have risen strongly in recent years, from Rs. 7.19 lakh crore in 2018 to Rs. 22.08 lakh crore in 2025, supported by digitalisation and stricter enforcement. 

The taxpayer base has also expanded from 65 lakh to 1.51 crore, reflecting the formalisation of the economy.

Bottom Line: Boon for the Common Man?

For the vast majority of households, farmers, and small businesses, GST 2.0 delivers tangible relief. Essentials, healthcare, education, and farm inputs are more affordable, while MSMEs benefit from smoother processes and improved cash flows. 

Luxury and sin goods remain highly taxed, ensuring fairness in revenue generation. If implemented effectively with quick refunds and stable compliance systems, GST 2.0 has the potential to ease living costs, spur demand, and strengthen India’s growth momentum, making it truly a “Good and Simple Tax” for the common man.