The Narendra Modi government made major changes to the Goods and Services Tax (GST) regime, simplifying the four rate-slabs in place to two broad slabs of 5% and 18%. This GST 2.0 to be implemented from September 22, 2025, is aimed at streamlining the tax regime, lowering prices of essential commodities, and increasing consumption. There has also been the addition of a new, independent 40% slab for luxury and "sin" products. The reforms will reduce the prices of a broad array of products for consumers and are likely to boost economic growth.
Analytical Facts of Slab Changes
The GST Council's move more or less eliminates the 12% and 28% slabs. The vast majority of the products currently in these slabs will be shifted to the lower 5% and 18% slabs.
From 28% to 18%: It is a big shift that will reduce the prices of several high-end consumer items. Products such as air conditioners, big TVs, refrigerators, and small vehicles with engines smaller than a certain size will now be taxed in the 18% slab, reduced from the earlier 28%.
From 12% to 5%: Numerous day-to-day necessities have been moved from the 12% slab to the lower 5% bracket. These comprise products such as hair oil, shampoo, toothpaste, some processed food items, and bicycles.
A New 40% Slab: In order to sustain revenue and discourage spending on non-essential goods, a new, separate 40% slab has been introduced for luxury goods and "sin" products. These comprise products such as luxury cars, tobacco, and cigarettes.
Largest Gainers - Poor and Middle Class
They are likely to be the largest gainer from the GST reforms. The drop in tax on items of everyday use will directly reduce their household expenses, giving them more disposable income. For the middle class, the reduced tax on durables such as ACs and TVs, and small cars and two-wheelers, will make these aspirational products cheaper to buy. The full waiver of GST on individual life and health insurance will also bring big relief, making basic financial security more within reach.
Women Happy – Household Items Cheaper
The GST reductions on everyday household and personal care items such as hair oil, shampoo, and toothpaste will immediately benefit women, who tend to be the lead managers of the household budget. By reducing the costs of these vital items, the reforms will lighten the household burden. The GST exemption of health and life insurance can also be hugely empowering, as it promotes increased financial planning and security.
Professionals and Students Gain
Students and young working professionals will benefit from the lower prices of basic study material. The reduction in taxes on some stationery, books, and digital devices is likely to lighten the financial load of the students. For the young generation, the decreased GST on two-wheelers and micro-cars, as well as gyms and beauty salons, will reduce the cost of their lifestyle options. The lowered living costs due to low-cost everyday commodities will also be a major benefit.
Relief For Senior Citizens
The biggest relief for senior citizens is the full exemption of GST on individual health and life insurance policies. This is a huge relief because it reduces medical and financial costs to a much lower cost. As healthcare expenses tend to rise with age, the elimination of the 18% GST on premiums directly decreases the financial burden on the elderly and their families, promoting higher insurance coverage.
Farmers To Get More Benefits
The reforms yield direct gains to the farming sector. The GST on a broad spectrum of farm equipment, such as tractors and irrigation systems, has come down from 12% or 18% to 5%. It will substantially reduce the cost of cultivation inputs, thus increasing farmers' incomes and productivity. The removal of inverted duty structures in industries such as fertilizers will also enhance the financial sustainability of associated businesses, which can in turn accrue benefits to farmers.
Burden Less for Private Employees
Private employees will directly feel an increase in their disposable income as a result of a lower cost of living. The GST reductions across a variety of items, from household items to consumer electronics, translate to more of their salary being available for discretionary expenses or saving. The exemption of tax on individual life and health insurance is a huge relief, allowing them to plan for their and their family's future without the extra burden of tax on premiums.
Less Confusion for MSMEs
For MSMEs, simplification of the GST structure into two slabs from four will substantially relieve compliance. The earlier multiple tax rates used to cause confusion and disputes over classification. By rationalizing the rates, the government is lessening the complexity of return filing and invoice management. This will conserve businesses' time and money, so they can concentrate more on development. The elimination of the inverted duty structure in some industries will also release working capital and enhance cash flow, enhancing the competitiveness of domestic producers.
