GST Council Approves 2-Slab Structure: What Gets Cheaper, What Gets Costlier
In a landmark decision, the Goods and Services Tax (GST) Council has approved a major reform in India’s indirect tax system. The existing four-slab structure of 5%, 12%, 18%, and 28% has now been replaced by a simplified two-slab system of 5% and 18%, along with a special 40% slab for select luxury and sin goods.
The decision was taken at the 56th GST Council meeting, chaired by Union Finance Minister Nirmala Sitharaman, after a marathon 10.5-hour discussion. The reform will come into effect from September 22, 2025, coinciding with the start of Navaratri.
Prime Minister Narendra Modi welcomed the move, calling it a “historic step” that will benefit farmers, MSMEs, traders, and the middle class, while giving a strong push to India’s economy.
What Gets Cheaper
The biggest winners of this rationalisation are consumers and small businesses. Here’s a look at the major items that will now cost less:
✅ Insurance & Healthcare
- Life and health insurance policies are now GST-free (reduced from 18%).
✅ Food & Dairy
- Exempt from GST: Ultra high temperature (UHT) milk, paneer, paratha, roti, pizza bread, khakra, and chena.
- 5% GST (instead of 12–18%): Butter, ghee, condensed milk, cheese, dry fruits, jams, jellies, confectionery, ice cream, pastry, biscuits, corn flakes, and cereals.
✅ Agriculture & Fertilisers
- Fertiliser inputs such as sulphuric acid, nitric acid, ammonia, biopesticides, and micronutrients are now at 5%.
- Agricultural equipment like tractors, threshers, and soil-preparation machinery will also be taxed at 5%.
✅ Automobiles
- Small cars (petrol <1200cc, diesel <1500cc) and motorcycles up to 350cc: GST reduced to 18% from 28%.
- Small hybrid cars also benefit.
- Electric vehicles (EVs) continue at 5%.
✅ Everyday Essentials
- Reduced to 5%: Shampoo, toothpaste, toothbrushes, talcum powder, face powder, soaps, hair oil, tooth powder, feeding bottles, utensils, bicycles, umbrellas, and bamboo furniture.
✅ Construction & Industry
- Cement: Now at 18% (down from 28%).
- Auto components: Reduced to 18%.
What Gets Costlier
While many essentials have become cheaper, some categories will now see a hike under the new structure:
- Luxury goods and sin products such as premium cars, tobacco, pan masala, and aerated drinks will be taxed under the special 40% slab.
- Certain high-end consumer durables may shift from lower rates to the 18% bracket, though detailed notifications will specify the list.
Why This Matters
- Simplified compliance: Businesses will no longer struggle with four different GST rates.
- Lower costs for consumers: Everyday goods, food items, and essential services will get cheaper.
- Boost for agriculture & MSMEs: Reduced rates on inputs and machinery will help farmers and small businesses.
- Infrastructure push: Cheaper cement and auto components will aid housing and manufacturing.
Final Word
This GST reform is being hailed as one of the biggest overhauls since the system was first rolled out in 2017. By cutting down the complexity of multiple slabs and lowering rates on essentials, the government aims to make compliance easier while ensuring consumers directly feel the benefits in their pockets.
As the new rates come into force from September 22, 2025, households, farmers, and small traders are set to enjoy significant savings — even as luxury and sin goods attract higher taxes.
