In a landmark decision, the Goods and Services Tax (GST) Council, during its 56th meeting chaired by Finance Minister Nirmala Sitharaman, approved sweeping reforms under the GST 2.0 framework. The new structure introduces a simplified two-slab system of 5% and 18%, along with a 40% demerit rate for luxury, sin, and demerit goods. These reforms will come into effect on September 22, 2025, coinciding with the first day of Navratri.
Key Highlights of GST 2.0
- Two-Slab Structure: The previous four-tier system (5%, 12%, 18%, 28%) has been streamlined into two main slabs – 5% and 18% – plus a 40% rate for super luxury items like pan masala and tobacco.
- Essential Commodities: Common-use items such as packaged food, hair oil, soap, shampoos, toothpaste, bicycles, kitchenware, and medical essentials like oxygen and diagnostic kits will now attract lower GST.
- Insurance Exemption: Life insurance (including ULIPs, endowment, and term plans) and individual health insurance policies, including family floater and senior citizen plans, are now exempt from GST.
- Household & White Goods: Appliances like air conditioners, dishwashers, and televisions will now fall under the 18% slab, down from 28%.
- Automobile Sector: Small cars, motorcycles under 350 cc, and automotive parts will be taxed at 18%, while larger cars will attract 40%. Electric vehicles remain at 5%.
- Services: Personal care services such as salons, gyms, yoga centres, and barbers will now be taxed at just 5%.
Structural Reforms for Businesses
Apart from rate rationalisation, GST 2.0 introduces automated registration and refund processes to ease compliance for businesses. The correction of inverted duty structures in the textile and fertiliser sectors is expected to improve working capital flow and reduce classification disputes.
Fiscal Impact and Consensus
While states initially expressed concerns over potential revenue losses, the Union Government assured fiscal sustainability. Revenue Secretary Arvind Shrivastava estimated the net fiscal impact at ₹48,000 crore, based on 2023–24 data. Importantly, the reforms were passed by consensus without voting, highlighting the cooperative federal approach of the Council.
A Reform for the People
Prime Minister Narendra Modi welcomed the Council’s decision, noting that GST 2.0 will benefit farmers, MSMEs, middle-class families, women, and youth by reducing the tax burden and simplifying compliance.
Finance Minister Sitharaman emphasized that the reforms prioritize the common man:
“Every tax levied on daily-use items has undergone a thorough review, and in most cases, rates have been cut drastically. The reforms will strengthen labour-intensive industries, agriculture, and healthcare while ensuring stability and predictability for businesses.”
Industry Response
Industry bodies have welcomed GST 2.0, assuring that the benefits of tax cuts will be passed on to consumers. Experts say the move will not only lower household expenses but also strengthen India’s ease of doing business ranking globally.
With GST 2.0, India marks a new chapter in indirect taxation, balancing citizen relief with business reforms while creating a streamlined and predictable tax environment.
