by The government plans to simplify the current GST system. Instead of four tax rates of 5%, 12%, 18%, and 28%, there will be just two main rates, 5% and 18%. Only a small group of luxury and harmful goods will continue to be taxed at a higher rate.
A new 40% rate will apply to super luxury items, tobacco, and other demerit goods. This reform, called GST 2.0, is set to be implemented from September 22, 2025, just ahead of the festive season to give relief to consumers and boost demand.
Although the government expects a short-term revenue loss of nearly ₹48,000 crore, it is confident that higher consumer spending will balance the impact and help the economy grow stronger in the long run.
The Need for GST 2.0 Reforms
Since its introduction in 2017, GST has transformed India’s indirect taxation system by replacing multiple taxes with one unified structure. However, frequent disputes over classifications, multiple tax slabs, and compliance difficulties made it cumbersome for both businesses and consumers.
To address these challenges, the government introduced GST 2.0 in September 2025, a major reform aimed at simplification, rate rationalisation, and fairness. It reduces slabs, cuts taxes on essentials, and introduces a higher slab for luxury goods to protect revenues.
GST Slab Structure Before and After 2.0
| Feature | Old GST (2017–2025) | New GST 2.0 (2025 onwards) |
|---|---|---|
| Slabs | 0%, 5%, 12%, 18%, 28% (+ cess) | 0%, 5%, 18%, 40% (luxury/sin goods) |
| Focus | Revenue collection, multi-slab balancing | Simplification, affordability, fairness |
| Compliance | Multiple slabs created disputes | Reduced slabs, easier classification |
| Luxury/Sin Goods | 28% + cess | Single 40% slab |
| Tech Compliance | E-Way Bill, e-invoicing | E-Way Bill 2.0, pre-filled returns, better IT |
FMCG & Household Goods: Old vs New GST Rates
Daily essentials like soaps, toothpaste, packaged food, and baby food are highly sensitive to taxation since they directly impact household budgets. Under GST 2.0, most of these items have been shifted to the 5% and 12% brackets, making them more affordable for families.
This reform also helps FMCG companies by boosting sales volumes, especially in rural and semi-urban markets.
| Goods | Old GST Rate | New GST 2.0 Rate |
|---|---|---|
| Toothpaste, Toothbrush | 18% | 5% |
| Soap & Detergent | 18% | 12% |
| Shampoo, Hair Oil | 18% | 12% |
| Packaged Food Items | 12% / 18% | 5% |
| Biscuits & Snacks | 18% | 12% |
| Baby Food & Nutrition | 12% | 5% |
Automobile Sector – Old vs New GST Rates
The automobile industry has been given special attention under GST 2.0. While small cars and two-wheelers now enjoy lower rates, luxury vehicles are taxed under the new 40% slab. This creates a balance between promoting middle-class mobility and ensuring revenue from high-value purchases. Electric vehicles remain at a concessional 5%, encouraging eco-friendly mobility.
| Vehicle Type | Old GST Rate | New GST 2.0 Rate |
|---|---|---|
| Small Cars (up to 1200cc) | 28% + cess | 18% |
| Two-Wheelers (up to 350cc) | 28% | 18% |
| Electric Vehicles | 5% | 5% (unchanged) |
| SUVs & Luxury Cars | 28% + cess (up to 50%) | 40% |
| Hybrid Cars | 28% | 18% |
Electronics & Appliances – Old vs New GST Rates
India’s middle class spends significantly on electronics, from mobile phones to refrigerators. Earlier, many of these products attracted 28% GST, making them costly. GST 2.0 has slashed rates on essentials like washing machines, refrigerators, laptops, and TVs to encourage digital adoption and higher consumer spending.
This is also expected to give a boost to India’s domestic electronics manufacturing sector.
| Product | Old GST Rate | New GST 2.0 Rate |
|---|---|---|
| Mobile Phones | 18% | 12% |
| Washing Machines | 28% | 18% |
| Refrigerators | 28% | 18% |
| Television (up to 32 inches) | 18% | 12% |
| Projectors | 28% | 18% |
| Laptops & Computers | 18% | 12% |
Healthcare & Medicines – Old vs New GST Rates
Healthcare is a priority sector, and GST 2.0 makes treatments more affordable by reducing taxes on essential medicines, cancer drugs, stents, and diagnostic kits. By lowering the tax burden, the government aims to reduce out-of-pocket expenditure for patients.
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This is a major welfare-oriented step, aligning with the goal of making healthcare accessible for all.
| Category | Old GST Rate | New GST 2.0 Rate |
|---|---|---|
| Life-Saving Drugs | 5% / 12% | 0% / 5% |
| Cancer & HIV Drugs | 12% | 5% |
| Medical Equipment (stents, implants) | 12% | 5% |
| General Medicines | 12% | 5% |
| Diagnostic Kits | 18% | 12% |
Agriculture & Farming Inputs – Old vs New GST Rates
Farmers form the backbone of India’s economy, and GST 2.0 has provided them relief by cutting taxes on fertilizers, tractors, and irrigation equipment. These reductions directly lower the cost of farming, improving farmers’ margins.
Cheaper inputs also stabilize food prices, benefiting consumers across the country.
| Item | Old GST Rate | New GST 2.0 Rate |
|---|---|---|
| Fertilizers | 12% | 5% |
| Pesticides | 18% | 12% |
| Tractors | 12% | 5% |
| Irrigation Equipment | 18% | 12% |
| Seeds | 0% | 0% (unchanged) |
Luxury & Sin Goods – Old vs New GST Rates
To balance the rate cuts on essentials, GST 2.0 has introduced a 40% slab for luxury and sin goods. This ensures that high-end consumption contributes significantly to government revenue. Products like tobacco, aerated drinks, and luxury cars are now taxed heavily.
This creates a progressive taxation system where essentials are affordable, while luxury buyers bear more responsibility.
| Category | Old GST Rate | New GST 2.0 Rate |
|---|---|---|
| Tobacco Products | 28% + cess | 40% |
| Aerated Drinks | 28% + cess | 40% |
| High-End Cars (above ₹50 lakh) | 28% + cess (up to 50%) | 40% |
| Yachts & Private Jets | 28% + cess | 40% |
| Alcohol (for industrial supply) | 18% | 40% |
Compliance Simplification Under GST 2.0 Reform
GST 2.0 is not just about revising tax slabs, it also simplifies the compliance process. With technology-driven reforms like pre-filled returns, e-invoicing upgrades, and E-Way Bill 2.0, businesses can save both time and costs. The new system particularly helps MSMEs and exporters by reducing paperwork and ensuring faster refunds.
- Pre-filled returns to reduce manual errors and save filing time.
- E-Way Bill 2.0 with faster verification for goods movement.
- Upgraded e-invoicing for real-time tax monitoring.
- Faster refund processing, especially for exporters and MSMEs.
- Digital-first compliance reducing inspector-level interface.
Benefits of GST 2.0 Reform
GST 2.0 brings wide-ranging benefits for consumers, industries, and the government. Essentials like food, medicines, and electronics are cheaper, while businesses face fewer classification disputes. With progressive taxation, luxury consumption is taxed higher, ensuring fairness and revenue stability.
- Lower household costs due to reduced GST on essentials.
- Boost in demand across FMCG, healthcare, auto, and electronics.
- Simpler slab structure, making compliance easier for businesses.
- Fairness in taxation, as luxury/sin goods attract higher GST.
- Economic growth driver, encouraging consumption and investment.
Challenges of GST 2.0
Like any reform, GST 2.0 has its share of challenges. While consumers benefit, businesses must reconfigure billing systems and train staff. Smaller traders may face confusion in the transition, and revenue collections could dip in the short term until the high 40% slab stabilizes.
- System upgrades required in billing, ERP, and accounting software.
- Smaller traders’ confusion due to lack of digital literacy.
- Short-term revenue pressure from reduced GST on essentials.
- Risk of tax evasion in high-value luxury goods.
- Need for awareness programs to educate lakhs of businesses.
FAQs on GST 2.0 Reforms
Q1. What is the biggest change in GST 2.0?
The biggest change is the rationalisation of slabs into 5%, 18%, and 40%, making taxation simpler and reducing disputes.
Q2. How will GST 2.0 impact household expenses?
Essentials like soaps, toothpaste, detergents, and packaged food are cheaper, reducing monthly budgets for families.
Q3. Are medicines cheaper under GST 2.0?
Yes, essential drugs and medical equipment now attract lower GST, cutting healthcare costs.
Q4. How are luxury goods taxed now?
Luxury cars, tobacco, aerated drinks, and yachts fall under the 40% slab, making them more expensive.
Q5. Does GST 2.0 benefit farmers?
Yes, fertilizers, tractors, and pesticides now attract lower GST, reducing farm input costs.
Q6. What compliance changes were introduced?
Pre-filled returns, E-Way Bill 2.0, and faster refunds make compliance easier for businesses.
Q7. Is GST 2.0 inflationary?
No, it is mostly deflationary as essentials get cheaper, though luxury goods will see higher prices.
