GST Slabs Cut: What Got Cheaper, What Got More Expensive

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The Ministry of Finance announced the new GST regime on Wednesday, 3 September 2025. In a press conference following the 56th meeting of the GST council, FM Nirmala Sitharaman said that the new system would come into effect from September 22, and will follow a primarily 2-slab structure, streamline processes for ease of use, and see massive rate rationalization.

“These reforms have been carried out with a focus on the common man,” she said, “Every tax levied on the common man has gone through a rigorous looking into, and in most cases, the rates have come down. Labour-intensive industries have been given good support. Farmers and agriculture will benefit from the decisions. Health-related sectors will also benefit.”

The new structure has been cut from these previous rates: 0.25%, 3%, 5%, 12%, 18%, 28%, down to 2 slab rates—- 5% and 18%. FM Sitharaman said that rates on essential and common consumer items have been cut down to 5%, while aspirational goods will now be taxed at 18%.

GST rates for common use food and beverages are being cut to 5%. This covers items like butter and ghee, dry nuts, condensed milk, sausages and meat, jam and fruit jellies, tender coconut water, namkeen, drinking water packed in 20-litre bottles, fruit pulp or fruit juice, beverages containing milk, ice cream, pastry and biscuits, corn flakes and cereals. This slab also covers other common use commodities like shampoo, talcum powder, toothpaste, toothbrushes, face powder, soap and hair oil.

Common beauty and health services such as gyms, salons and yoga centres are also being taxed at 5%.

See Also: GST Reforms are Structural, to Benefit Middle Class and Farmers: FM Sitharaman

At the same time, inverted duty structures are being rectified, so that raw materials in industries like textiles, fertilizers and construction which were taxed at higher rates than their final products, will now be taxed at lower rates of 5% and 18%. As a result, property taxes are expected to drop, while investments are anticipated to increase. These changes are expected to ease the burden on consumers and micro, small and medium enterprises (MSMEs) alike.

Many aspirational products like white goods (ACs, TVs, refrigerators, etc.) along with small cars and many two wheelers are being taxed lower at 18%, pointing to lower prices across the automotive industry.

Notably, rates on individual health and life insurance and certain life-saving drugs have been brought down to 0% in these reforms, along with certain daily food items like paneer, UHT milk and Indian breads. Meanwhile, rates on certain ‘sin’ and super luxury products like tobacco, large cars and private planes have increased to 40% from the earlier 28%. Overall revisions have been applied to nearly 400 items.

The SBI’s economic research wing calculated, given these changes, that the average tax rate under GST is expected to fall to 9.5% by 2026-27, from a notional rate of 11.6% as of September 2019.

The council also announced plans to implement faster GST registrations, automated refunds, pre-filled returns, clarifications on the way commodities are classified , and fewer compliance steps for small businesses, addressing complaints of the earlier system being too complicated.

At the same time, concerns have been raised with the council and by states regarding the impact these changes will have on revenue. These reforms were presented to the council by two Groups of Ministers (GoM) - one focussing on rate rationalisations, the other looking at compensation cess. The GoM for rate rationalisation accepted the centre’s proposal for the 2-slab system. It also raised questions on state revenue being impacted by the rate cuts and other forms of compensation, which went unaddressed. Compensation cess is also expected to cease before its legal end date of 31 March 2026, as noted by the second GoM. This leaves one question hanging: how are states going to compensate for the sudden decline in revenue?

GST revenue could be affected by as much as Rs.1.8 lakh crore, split between the Centre and the States. Revenue Secretary Arvind Shrivastava, however, has calculated a net fiscal implication of Rs. 48,000 crore based on 2023-24 consumer trends, arguing that the rate rationalisation is likely to make the economy more compliant and buoyant.

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