In a sweeping tax overhaul dubbed “GST 2.0,” the GST Council simplified India’s multiple tax slabs (5%, 12%, 18%, 28%) into just two modern-standard rates—5% and 18%, effective September 22, 2025, right before the festive season of Navratri and Diwali. Alongside, a new 40% slab was introduced for sin and luxury goods, and GST has been abolished on life and health insurance premiums.
What Has Changed?
- As earlier there was slab rate at 5%, 12%, 18%, 28%, now it has been changed into 5%, 18%, plus 40% for sin/luxury goods.
- Earlier life & health insurance was taxed, now it is fully exempted from gst.
- Earlier cess system was uneven and had a complex structure, now that compensation cess removed.
Why the Big Shake-Up?
1. Simplicity & Ease of Compliance
By reducing complexity, the government has made GST easier to understand, file, and comply with—for both businesses and consumers.
2. Inflation Relief & Stimulating Demand
Prices of everyday goods like essentials—from chocolates and noodles to electronics—are expected to ease, giving a fiscal boost just in time for the festive season.
3. Public Health & Revenue Balance
A 40% slab on harmful “sin goods” like tobacco, aerated or carbonated drinks, and luxury vehicles balances revenue needs while discouraging unhealthy consumption.
4. State-Fed Fiscal Dynamics
The move is expected to cost INR 48,000 crore (~$5.5 billion), sparking debate over state compensation—but economists believe consumption-driven growth can offset losses.
5. Political Symbolism
Timed for pre-festive cheer and state elections (like in Bihar), the reform has been seen as a politically savvy “early Diwali gift.
Trending Questions Around the Reform
1. What’s cheaper now and how does it benefit people?
With the new GST reform, daily essentials like butter, ghee, paneer, cheese, chocolates, and packed food items have either shifted to the 5% slab or gone tax-free. Electronics such as air conditioners, TVs, and washing machines have moved from 28% to 18%, making them significantly cheaper weather you are going for normal household purchase or wedding purchase.
Benefit for citizens: Families will save more during monthly grocery and appliance shopping, especially ahead of Diwali. Middle-class households can finally upgrade home appliances at lower costs. FMCG companies expect a sales surge, which can also generate jobs.
Opposition’s view: Critics argue the timing is politically motivated, designed to attract voters before state elections. They also point out that reduced GST collections may worsen the fiscal deficit, forcing the government to borrow more later.
2. What’s more expensive now, and why?
Luxury and “sin goods” such as tobacco, pan masala, aerated drinks, high-end motorcycles, yachts, and luxury cars are now under the new 40% slab.
Benefit for society: The higher tax is expected to discourage excessive consumption of harmful products like tobacco and sugary drinks, while ensuring the wealthy continue contributing more to tax revenues. It balances out the revenue shortfall from cutting GST on essentials.
Opposition’s view: Luxury industries warn this may hurt sectors like premium cars, aviation, and hospitality, reducing foreign investment. Some critics also say this “Robin Hood tax” unfairly punishes aspirational middle-class buyers who dream of owning premium cars.
3. How are automobiles and electronics affected?
Small cars and popular family vehicles (like Maruti Swift, Hyundai i20) now fall under 18% GST instead of 28% + cess, making them INR 50,000–INR 70,000 cheaper. Electronics like ACs, refrigerators, and TVs are also taxed at 18% instead of 28%.
Benefit for citizens: Car ownership and home appliance upgrades are now within reach for many middle-class families. Auto and electronics industries expect a demand boom, creating more employment.
Opposition’s view: Opposition parties argue that while small cars are cheaper, luxury and premium models remain very costly. They also question whether the GST relief will truly be passed on to customers, as companies may keep part of the margin.
4. What about insurance policies—how do citizens gain?
Life and health insurance premiums are now GST-exempt. Earlier, 18% GST made policies expensive, discouraging people from buying coverage.
Benefit for citizens: Insurance premiums are now more affordable, encouraging financial protection for millions of families. This also supports the government’s aim to expand insurance penetration under Ayushman Bharat and other health programs.
Opposition’s view: While welcoming the exemption, critics highlight that the reform came too late, after years of families paying extra GST on essential health cover. They also demand similar tax relief on education services.
5. Impact on hotels, flights, and restaurants
Budget hotel stays (below INR 7,500/night) and restaurant meals are now under 5% GST. Economy class flights are at 5%, while business class flights have dropped from 18% to 12%.
Benefit for citizens: Travel and dining become more affordable, especially for the growing middle class. This is expected to boost tourism and hospitality sectors, which were struggling post-Covid.
Opposition’s view: The opposition claims these cuts are aimed at creating festive-season cheer but will reduce state revenues. They argue smaller states reliant on tourism may still struggle if the Centre does not guarantee compensation.
7. What are the wider economic ripple effects?
Industries like FMCG, auto, insurance, and hospitality will likely see a demand surge. Stock markets already reacted positively, with shares of Nykaa, PB Fintech, and FirstCry rising.
Benefit for economy: Increased consumer demand can offset some revenue loss from tax cuts. The move also makes India’s GST simpler and more globally competitive.
Opposition’s view: Economists aligned with the opposition argue that a INR 48,000 crore revenue shortfall could put states in financial distress. Without a clear compensation plan, they fear reduced spending on health, education, and rural development.
Final Takeaway
India’s “GST 2.0” reform marks one of the most transformative overhauls in indirect taxation in years:
- Simpler, more transparent tax structure (5%, 18%, with specific 0% and 40% slabs).
- Substantive relief on everyday essentials and appliances—delivering timely festive benefits.
- Fairness focus: zero GST on insurance; steep levy on harmful luxury items.
- Fiscal strategy: A calculated trade-off to spur consumption and offset revenue dips through higher demand.
- Political resonance: A Diwali-ready move with tangible relief for millions.