Introduction to GST Reform 2025
The Goods & Services Tax (GST) has seen its biggest change since it was first launched in 2017.
Starting September 22, 2025, the previous intricate four-tiered tax system, which included rates of 5%, 12%, 18%, and 28%, will be simplified significantly.
It will now feature just two primary tax slabs: 5% and 18%. This change is expected to make the GST system much more transparent and easier for consumers to understand and navigate.
Consequently, using tools like a GST calculator will become considerably simpler and more intuitive for everyone.
New GST Structure: Two Slabs—5% & 18%
- 5% GST slab – Will cover essentials and daily-use products.
- 18% GST slab – Will cover most goods and services.
A special 40% slab will remain for luxury and harmful items like high-end cars, tobacco, and cigarettes.
Key Highlights from the 56th GST Council Meeting
GST Reduction on Vehicles
The GST tax rate on small cars, motorcycles, buses, trucks, and ambulances has been reduced from 28% to 18%. A big relief for the auto sector and buyers.
Check out our detailed guide on GST applicable to used and old cars.
No GST on life & health insurance
- GST rates for life and health insurance premiums are now 0%.
- This makes health protection more affordable.
- Families can now save more instead of paying GST on health insurance.
You can read our detailed guide on the old GST rate on medical insurance.
New 40% Slab for Luxury Goods
- High-end cars, tobacco, and cigarettes will now be taxed at 40%.
- This ensures luxury/harmful items don’t get cheaper while keeping essentials affordable.
Lower Taxes on Food & Daily Essentials
- Nil GST on UHT milk, paneer (chena), pizza bread, and khakhra.
- 5% GST (down from 18%) on butter, ghee, dry fruits, jam, juices, ice cream, biscuits, namkeen, and more.
Cheaper Consumer Durables
- Air Conditioners (ACs) and Televisions (TVs) will now attract 18% GST instead of 28%.
- This is expected to boost sales in the festive season and encourage households to buy energy-efficient appliances.
Impact on Consumers and Businesses
- For Households: Lower trading tax on food and appliances, plus no GST on health insurance, means more savings.
- For Businesses: Lower costs will boost demand in the auto, consumer durables, and FMCG sectors.
- Revenue Impact: The government expects a ₹48,000 crore revenue shortfall but sees long-term growth benefits.
Compensation Cess Explained
The compensation cess will still be applied, but only to tobacco and products made from tobacco.
This tax helps states make up for any money they lose because of changes made by the Goods and Services Tax (GST) reforms.
Its impact on the mentioned details means that only tobacco and related products will be subject to this cess, contributing to state revenue stability after the GST transition.
In India, Compensation Cess is imposed on specific goods and services. Its primary purpose is to offset the revenue shortfall experienced by states as a result of the Goods and Services Tax (GST) implementation.
Check out the list of goods and services exempt from GST.
Income Tax Connection: More Disposable Income
Along with the GST changes, the government has revised the income tax rate, exempting earners up to ₹12 lakhs.
This means:
- More disposable income in people’s pockets.
- Higher spending power in markets.
How to Calculate GST Easily
With only two slabs now, using a GST tax calculator, GST tools, or even a simple GST calculator is much easier.
- Select product → Enter price → Choose slab (5% or 18%) → Get the final price instantly.
Confused about numbers? Don’t worry! Check out our free GST calculator to make tax math as easy as 1-2-3.
Comparison Table: Old vs New GST Rates
|
Category |
Items |
Old GST Rate |
New GST Rate |
|
Food & Beverage |
Chapati, Paranthas, UHT Milk, Chena, Paneer, Pizza bread, Khakra |
5% |
0% |
|
Butter, Ghee, Dry Nuts, Condensed Milk, Sausages, Jam, Ice Cream, Pastry, Biscuits, etc. |
18% |
5% |
|
|
Cheese, Other fats |
12% |
5% |
|
|
Plant-based & Soya Milk drinks |
18% / 12% |
5% |
|
|
Household Items |
Tooth powder, Feeding bottles, Utensils, Umbrellas, Bamboo furniture, Combs |
12% |
5% |
|
Shampoo, Soap, Toothpaste, Hair oil, etc. |
18% |
5% |
|
|
Appliances |
ACs, Dishwashers, TVs |
28% |
18% |
|
Stationery |
Notebooks, Pencils, Crayons, Maps, Globes |
12% |
0% |
|
Erasers |
5% |
0% |
|
|
Footwear & Textiles |
All mass-market footwear and clothing |
12% |
5% |
|
Healthcare |
Thermometers, Medical-grade oxygen, Spectacles, Diagnostic kits, glucometers, and Life-saving drugs |
12% / 18% |
5% / 0% |
|
Insurance & Services |
Life & Health Insurance Policies |
Taxed |
0% |
|
Goods Carriage Insurance (3rd party) |
12% (with ITC) |
5% (with ITC) |
|
|
Hotels & Flights |
Hotel rooms (up to ₹7,500), Economy class flights |
12% (with ITC) |
5% (without ITC) |
|
Vehicles |
Motorcycles ≤350cc, Small hybrids, Petrol/Diesel/CNG vehicles ≤1200/1500cc, ≤4000mm |
28% |
18% |
|
Auto components |
28% |
18% |
|
|
Electric vehicles |
5% |
5% |
|
|
Construction |
Cement |
28% |
18% |
|
Agricultural Machinery |
Tractors, Sprinklers, Pumps, Soil prep/harvesting equipment, Small diesel engines |
12% |
5% |
|
Fertilizers & Inputs |
Sulphuric acid, Nitric acid, Ammonia, Biopesticides, Micronutrients |
18% / 12% |
5% |
|
Tractor Components |
Tyres, Tubes, Axles, Brake parts, Gearboxes, Radiators |
18% |
5% |
|
Sewing Machines |
Sewing machines and parts |
12% |
5% |
|
Beauty & Wellness |
Salons, Gyms, Yoga, Health clubs |
18% |
5% (no ITC) |
Notes:
- ITC (Input Tax Credit): Businesses can continue to claim ITC under the new GST structure. This means taxes paid on raw materials/services can be set off against final tax liability.
- Unchanged: Some products like gold, petroleum, and alcohol remain outside or unchanged in the goods and services tax framework. They are taxed separately by states.
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Expert Reactions & Market Sentiment
Revenue Secretary Arvind Shrivastava said the reform will have a revenue implication of ₹48,000 crore for the government. Bihar Deputy CM Samrat Choudhary highlighted that the decision came through consensus among states.
Manish Sharma, Chairman of Panasonic Life Solutions India, hailed the move:
“The GST cut on ACs and TVs makes aspirational products more affordable, especially this festive season. Along with the revised income tax slab exempting earners up to ₹12 lakhs, these reforms will boost consumer sentiment, spur demand, and drive economic growth.”
What This Means for You
Big changes are coming to taxes! New GST rules are here to make things super simple for everyone. Think less tax, cheaper everyday stuff, and no more GST on health insurance!
This isn't just a fix; it's a fresh start for India's tax system, built for easy growth. Families, get ready to save big! Businesses, prepare for huge growth! This is your time.
