In its 56th meeting (September 3–4, 2025), the GST Council, led by Finance Minister Nirmala Sitharaman, rolled out a dramatic rationalisation of India’s GST structure. The existing four-tier system (5%, 12%, 18%, 28%) has been condensed into two core slabs — 5% and 18%, alongside a dedicated 40% “sin-and-luxury” tax for select demerit goods. These reforms—termed “GST 2.0”—aim to simplify taxation, reduce inflationary burdens, and boost consumption ahead of the festive season. The new rates, along with simplified procedures and compensation mechanisms, will take effect from September 22, 2025.

Luxury, sin, and demerit goods—including tobacco, alcohol, high-end vehicles, premium apparel, soft drinks, and fast food—will come under the 40% slab, safeguarding revenue from discretionary consumption.

Items Becoming Cheaper

Everyday Essentials (5% Slab)

Nearly all items currently under the 12% slab are set to move to the lower 5% rate—covering grocery staples, toiletries, snacks, medicines, stationery, and certain appliances. Notables include:

• Grocery & Packaged Food: milk powder, sugar, noodles, chocolate, Jams, namkeens, condensed milk.
• Personal Care & Household Items: toothpaste, tooth powder, soaps, hair oil, umbrellas, feeding bottles, utensils, and jute/cotton handbags.
• Stationery & Education: pencils, geometry boxes, exercise books, maps, lab notebooks.
• Medicines & Healthcare: vaccines, diagnostic kits, basic Ayurvedic remedies.
• Miscellaneous: bicycles, non-electric water filters, non-kerosene stoves, barbecues, solar heaters, pre-fabricated buildings.

Consumer Durables & Vehicles (18% Slab)

Products moving from the 28% bracket down to 18% include:

• Electronics & Appliances: ACs, televisions, washing machines, refrigerators.
• Automobiles: small petrol, hybrid and entry-level EVs.
• White Goods & Construction: cement, ready-mix concrete.
• Other Goods: insurance (possibly zero), dishwashers, printers, aluminium foil, razors, dental floss, tempered glass.

Fiscal Implications & State Concerns

The projected revenue loss is estimated at $20–21 billion, or about 0.4% of GDP, which may disproportionately affect state finances. Opposition-ruled states have voiced concerns and are seeking federal compensation.