1. Introduction
India’s tax system is on the verge of remarkable change with the 56th GST Council Meeting, chaired by Union Finance Minister Smt. Nirmala Sitharaman, approving the ‘Next-Gen GST Reforms’ or ‘GST 2.0.’ Like other industry leaders, Modi considers it a ‘historic Diwali gift’ for the people of India, and these reforms will undoubtedly help reduce the cost of goods and services, improve compliance ease, and stimulate the growth of the economy. Starting on ‘22nd September 2025’ and aligned with the new GST rates list, citizens will be ready for a new economic wave of optimism and will be gravely relieved, as it marks the beginning of Navratri.
2. The Core of GST 2.0: A Simplified Tax Structure
The biggest reform in GST 2.0 is the restructuring of Goods and Services Tax regime to become a simplified two-slab regime instead of a four-slab regime. The former 12% and 28% tax brackets have been abolished, and most products have been reclassified to fall under a 5% or merit rate for essential products or the 18% standard rate otherwise. Also, a 40 per cent demerit rate has been instituted on luxury and sin goods, such as tobacco, pan masala, aerated beverages, high-end vehicles, yachts, and personal planes to ensure an equitable balance of revenues. A major exception is that no rate and compensation will cease on some tobacco products until the loan debt is paid off.
3. Direct Benefits for the Common Man: A Sector-Wise Analysis
The Next-Generation GST reforms will introduce a virtuous cycle of growth by directly boosting household savings and stimulating consumption through reduced prices. This is how other industries will give relief to the average man.
A. Food and Household Essentials
- Soaps, shampoos, bicycles, and other daily essentials will now face a monetary charge of 5%.
- Items such as packed namkeen, bhujia, sauces, pasta, chocolate, coffee, preserved meat, condensed milk, butter, ghee, dried fruits, frozen vegetables, and cereals will now have a tax on them as less than 5%.
- Products like UHT milk, pre-packed paneer, and other breads as well as plain roti and chapati, will all be subjected to Nil GST.
- This is expected to increase the demand for grocery essentials and hence the FMCG sector will benefit, as there will be a 10-15% reduction on the grocery prices. This is expected to benefit families as well.
B. Consumer Durables and Electronics
- Air conditioners, washing machines, televisions above 32 inches, monitors, projectors, and dishwashers will have their GST rates reduced from 28% to 18%.
- This reduction lowers consumer prices while unlocking new demand for eco-friendly options and bolsters the electronics manufacturing industry in India.
C. Automobile Sector
- Small cars, two-wheelers up to 350cc, buses, trucks, three-wheelers, and all auto components will be taxed at 18% instead of 28%. Lowering the barriers will drive demand and allow for greater accessibility, especially during the festive seasons.
- Electric Vehicles will continue to have a 5% GST.
- However, larger cars over 1200cc petrol/1500cc diesel/over 4000mm length and motorcycles over 350cc will have a 40% tax as per to new GST Rules.
D. Healthcare and Medical Sector
- 33 lifesaving drugs and diagnostic kits shall have Nil GST. For other medicines (Ayurveda, Unani, and even Homoeopathy) the GST rate was reduced from 12% to 5%. There is also the removal of GST for cancer and rare disease therapies.
- Spectacles and corrective goggles have a reduced GST of 5%, down from 28%.
- Medical oxygen, thermometers, surgical instruments and devices, with other devices, have a reduced GST of 5%, down from 12-18%.
- All of these modifications to the tax structure greatly increase access to medical services and promote local industry by lowering the prices of crucial medical goods. This is especially beneficial for people residing in Tier 2 and Tier 3 cities.
E. Insurance
- The GST charge imposed on individual life and health insurance has been eliminated to Nil, and its current status is 18%.
- The historic decision will broaden the range of financial protection, enhance affordability, and spur greater uptake of insurance, consistent with the vision of ‘Insuring All by 2047’.
F. Education Sector
Exercise books, erasers, pencils, crayons and sharpeners will be subjected to 0% GST and this will directly benefit families and students through the reduction of the costs of learning materials. Other products such as geometry boxes, school cartons and trays will also have GST cut down at 12 percent to 5 percent according to new GST Rules.
G. Home Building & Construction Materials
- GST on cement has been reduced from 28% to 18%.
- GST has been reduced on marble, granite, sand-lime bricks, bamboo flooring and wooden packing cases from 12% to 5%.
- These reductions will lower costs significantly in home building which will make it more affordable and housing demand will grow which also grows demand for jobs.
H. Services and Hospitality
- Hotel stays up to ₹7,500/day will now be subject to 5% GST (no ITC), previously 12% (with ITC).
- Services and gyms, salons, barbers, and yoga will all now be at 5% GST reduced from 18%. These reductions lower costs for citizens while stimulating growth in the hospitality and wellness industries.
I. Agriculture and Rural Sectors
- Tractors, harvesters, threshers, sprinklers, drip irrigation, and poultry/bee-keeping apparatus will see GST cut from 12% to 5%.
- Fertilisers inputs (sulphuric acid, nitric acid, ammonia) will be cut from 18% to 5%, rationalising the inverted duty structure and enhancing domestic production.
- Bio-pesticides and natural menthol rates are also reduced to 5%. This policy both lowers costs for small farmers, encourages sustainable practices and boosts self-reliance in agriculture.
4. New GST Rates list: A Hike Observed
5. 7 Pillars of Next-Gen GST Reforms
6. Broader Economic and Societal Impact
The GST 2.0 reforms are poised to deliver a multi-faceted positive impact on the Indian economy:
7. Performance Till date
8. Conclusion
The adoption of new GST Rules and massive rate cuts mark a new stage in India’s taxation evolution. These reforms make GST not only a tax system but also a driving force towards a prosperous and inclusive economy, as they focus on making it affordable to citizens, competitive for businesses, and transparent in its compliance. These reforms that take effect on 22nd September 2025, will enhance the commitment of India to building a simpler, fairer and more growth-oriented GST framework, which not only helps to ensure that people live better lives, but also takes care about business operations facilitation.
“At a time where consumption demand has been uneven and felt pressure from high inflation and low nominal wage growth over the last couple of quarters, the proposed GST reforms are a positive, especially for essentials, aiding consumption by the lower and middle income class.” ——– Sakshi Gupta, Principal Economist at HDFC Bank.
Sources:
- PIB, Govt. of India
- Ministry of Finance, Govt. of India