New GST Rates 2025 : Economic Impact, Key Changes And Their Impact

Most goods and services will fall under 5% or 18%, while luxury and sin goods face higher rates. The move is aimed at easing compliance and bringing simplicity to the indirect tax regime. New GST rates LIVE updates: The Goods and Services Tax (GST) regime is set for a major revamp beginning September 22, 2025 (Monday).

India's new GST rates (effective September 22, 2025)

India has simplified its Goods and Services Tax (GST) system into a primarily two-tier structure of 5% (merit rate) and 18% (standard rate), replacing the previous four-tier structure of 5%, 12%, 18%, and 28%. A higher 40% rate applies specifically to luxury and "sin" goods.

This reform, referred to as "GST 2.0," aims to decrease taxes on essential goods and services, enhance affordability, and simplify tax compliance for businesses.

Key Changes And Their Impact

• Reduced rates on essentials: Many everyday items, including packaged foods, household products, and essential medicines, have seen their GST rates decrease to 5% from 12%/18%.
• Electronics and automobiles become cheaper: GST on consumer durables and small cars has been reduced from 28% to 18%. Mobile phones and laptops remain at 18% GST.
• Healthcare and education more accessible: Individual life and health insurance are now GST exempt. Certain life-saving cancer drugs and essential educational items are also GST exempt (0%).
• Higher taxes on luxury and "sin" goods: A 40% rate applies to items such as premium cars, high-end motorcycles (over 350cc), and aerated beverages. Tobacco products will eventually move to the 40% slab but remain under the 28% GST plus compensation cess for now.
• Procedural Simplification: Automated GST registration approvals are available for small, low-risk businesses within three days. There is also a system for risk-based provisional sanctioning of 90% of refunds for exporters and businesses with inverted duty structures.

Read: PM SVANidhi Scheme Eligibility And Key Features

GST Rates Overview (Effective September 22, 2025)

The new GST structure primarily features a 5% merit rate and an 18% standard rate. Essential goods and services, including individual life and health insurance and certain educational and healthcare services, are at 0%. Luxury and "sin" goods are taxed at 40%. Precious metals and stones remain at 3%, while certain diamonds and stones in the gems and jewelry sector are at 0.25%.

Economic Impact

The new GST structure could potentially reduce inflation by up to 1.1 percentage points. Lower GST rates are anticipated to boost demand in sectors like automobiles, consumer durables, and FMCG. While a short-term revenue loss for the government is estimated, it is expected to be offset by increased tax compliance and higher consumption in the medium term.

Note

The GST rate changes are effective from September 22, 2025, with some tobacco products transitioning later.

The Goods and Services Tax Appellate Tribunal (GSTAT) is scheduled to be operational in 2025.