India rolls out GST 2.0 with sweeping changes to spur consumption

From today, September 22, 2025, India has entered a new era of taxation with the launch of GST 2.0. The reform, described by Prime Minister Narendra Modi as a big step toward making the country atmanirbhar, has brought major changes to the Goods and Services Tax system. Prices of nearly 375 products, including food items, medicines, electronics, and automobiles, are set to come down. The move is expected to bring relief to middle-class households while boosting nationwide consumption.

The updated GST framework simplifies the tax structure by reducing the number of slabs. Earlier, GST was charged in four slabs—5%, 12%, 18%, and 28%. Under GST 2.0, only two slabs will apply—5% and 18%. Luxury items like high-end cars, private jets, and yachts will face a steep 40% tax, while tobacco and related products remain under the 28% slab with an additional cess.

Direct relief for families and common consumers

One of the most notable features of GST 2.0 is its focus on affordability. Essential goods such as food grains, medicines, and daily-use household items remain in the lowest 5% tax category. This ensures that basic items remain within reach for ordinary families. The government’s decision to remove the 12% slab has also resulted in a sharp reduction in prices of many mid-range goods.

Finance Minister Nirmala Sitharaman explained that these reforms will significantly reduce the tax burden on citizens. Estimates suggest that households could collectively save up to Rs 2 lakh crore due to the revised tax structure.

Cheaper food and beverages

Grocery and kitchen bills are expected to come down as a wide range of food items will now be taxed at lower rates. Products such as paneer, milk, parathas, cereals, biscuits, butter, dry fruits, chocolates, fruit juices, and even snacks like bhujiya and namkeen have shifted from higher tax slabs to just 5% or even 0%. Everyday beverages, including packaged coconut water and milk-based drinks, have also become cheaper.

Lower cost of personal care items

Personal care products, including shampoo, soap, hair oil, talcum powder, shaving cream, toothpaste, and dental floss, will now attract just 5% GST instead of 12% or 18%. This reduction directly benefits households, making common grooming products more affordable.

Big cuts in electronics and appliances

Another significant relief comes in the form of reduced taxes on electronics. Large household items like air conditioners, washing machines, televisions, and dishwashers will now attract 18% GST instead of 28%. This change is expected to encourage families to purchase durable goods and ease household budgets.

Medicines and healthcare become affordable

Medical costs are also set to reduce. Essential medicines, including those used for cancer and rare diseases, will now be exempt from GST. Other medicines and devices such as diagnostic kits, thermometers, medical oxygen, and surgical equipment have seen their tax rates drop to 5%. The government has directed pharmaceutical companies to revise Maximum Retail Prices (MRPs) and ensure consumers receive the full benefit of these cuts.

Services at lower cost

The service sector too will see changes. Salons, gyms, yoga centers, and fitness studios will now attract a reduced tax rate. This is expected to make wellness services more affordable to a wider section of the population.

Full list of changes across sectors

The revised GST has touched almost every sector. For students, items like notebooks, erasers, pencils, crayons, maps, and globes will now be tax-free, reducing education costs. Baby care products such as diapers, feeding bottles, and napkins will be taxed at just 5%. Household goods like kitchen utensils, sewing machines, candles, and safety matches are also included in the lower slab.

Farmers will benefit as tractors, tractor parts, harvesters, sprinklers, drip irrigation tools, and poultry machinery are now taxed at 5%. This step is expected to reduce farming costs and support rural India.

The automobile sector is another big gainer. Two-wheelers, small cars, three-wheelers, and passenger vehicles have moved from the 28% slab to 18%. Bicycles and their parts have also been brought under the 5% category. This change is expected to increase vehicle sales, particularly benefiting middle-class buyers.

The construction sector will also see cost savings. Cement, which was earlier taxed at 28%, will now fall under the 18% slab. Materials like marble, granite blocks, and bamboo flooring are now at 5%. This will lower building costs and boost the real estate sector.

In the field of consumer electronics, televisions larger than 32 inches, projectors, air conditioners, and dishwashers will now carry 18% GST instead of 28%. Solar water heaters and solar cookers are at 5%, supporting green energy adoption.

Toys, games, handicrafts, and cultural products have also seen tax reductions, with most items moving from 12% to 5%. This includes traditional handmade toys, wooden dolls, board games, sculptures, lamps, and brass or copper artifacts.

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Higher taxes on luxury and sin goods

While most essentials have become cheaper, the government has increased taxes on luxury and harmful goods. A new 40% GST rate has been applied to ultra-luxury items such as private jets, yachts, and expensive cars. Pan masala, tobacco, and aerated drinks remain in the 28% slab with additional cess. The aim is to discourage the consumption of harmful products and ensure that luxury users contribute more to government revenue.

A reform aimed at growth

The GST 2.0 overhaul is seen as one of the biggest reforms since the introduction of GST in 2017. By simplifying the tax structure, reducing rates on essentials, and raising taxes on luxury and harmful products, the government hopes to balance affordability with revenue collection.

Prime Minister Modi has called it a “transformative step” that will strengthen domestic consumption and make India more self-reliant. Economists also believe the reform will stimulate demand, give a boost to manufacturing, and improve compliance by making the system simpler.

For households, the immediate impact will be visible in reduced grocery bills, cheaper personal care and electronic products, lower medical costs, and affordable services. At the same time, industries like automobiles, real estate, and healthcare are expected to see higher demand, supporting overall economic growth.