GST 2.0: India’s revamped Goods and Services Tax (GST) system took effect September 22, 2025, replacing the previous four-tier structure with a streamlined framework featuring two primary rates of 5% and 18%, plus a 40% levy on luxury and sin goods.
GST 2.0 starts today
Prime Minister Narendra Modi characterized the reform as the beginning of a “Bachat Utsav” or festival of savings, promising reduced prices on daily essentials. The changes emerged from the 56th GST Council meeting led by Finance Minister Nirmala Sitharaman.
The restructuring (GST 2.0) eliminates the previous 12% and 28% brackets that created classification confusion. Essential items including food grains, medicines, dairy products, and educational materials will be taxed at 5%. Standard goods and services, covering manufacturing, transport, and consumer services, face an 18% rate.
Luxury and sin products—tobacco, pan masala, aerated drinks, premium vehicles, gambling, and online gaming—now attract the 40% rate.
Structural Changes of GST 2.0:
- Previous system featured confusing four-tier structure: 5%, 12%, 18%, and 28%
- New simplified framework of GST 2.0:
- 5% for essentials and daily-use goods including food grains, medicines, basic dairy items, and educational products
- 18% for standard goods and services covering manufacturing, transport, and consumer services
- 40% for sin and luxury goods including tobacco, pan masala, aerated drinks, premium vehicles, gambling, casinos, online gaming, and race clubs
- Union Finance Ministry notified revised Central GST rates; states issuing respective State GST notifications
Items Getting Cheaper under GST 2.0
Food and Dairy:
- UHT milk, chapati, paratha, and parotta become tax-free
- Butter, ghee, paneer, and cheese move to 5%
- Packaged foods like pasta, biscuits, chocolates, cornflakes, namkeens, and bhujia taxed at 5%
Dry Fruits and Sugar Products:
- Almonds, cashews, pistachios, and dates drop from 12% to 5%
- Refined sugar and confectionery move to 5% bracket
Consumer Durables:
- Washing machines, dishwashers, and televisions shift from 28% to 18%
- Hair oil, shampoos, toothpaste, and dental floss move to 5%
Automobiles:
- Small cars and motorcycles with engines up to 350cc taxed at 18% instead of 28%
- Life and health insurance policies become tax-free
Services:
- Hotel tariffs under Rs 7,500 attract 5% instead of 12%
- Economy air tickets taxed at 5%
Items Getting Costlier under GST 2.0
- Cigarettes, gutkha, zarda, pan masala, and aerated waters with added sugar now taxed at 40%
- Coal taxation increased from 5% to 18%, raising costs for coal-based industries
- Motorcycles above 350cc and luxury cars attract 40%
- Casino, horse racing, lottery, and IPL tickets fall under 40% bracket
Consumer Skepticism
LocalCircles Survey Results (19,000 respondents):
- Only 18% of consumers felt GST rate cuts were passed on after earlier reforms
- 26% reported manufacturers never lowered maximum retail prices
- 15% blamed retailers for not reducing prices despite lower taxes
- 32% could not confirm receiving any benefits
- Only 2 in 10 said they received benefits from earlier GST rate cuts
Government Expectations vs. Reality
- Government expects GST 2.0 to reduce compliance challenges, cut disputes, and make goods cheaper
- Expected to widen India’s tax base and increase disposable income
- Aims to spur consumer spending through simplified structure
- However, actual benefits depend on businesses transferring reduced tax burden to consumers
- Experts emphasize need for strong monitoring mechanisms to ensure price reductions reach end buyers.
