India is preparing for one of the most sweeping tax changes since the Goods and Services Tax (GST) was introduced in 2017. The 56th GST Council meeting in New Delhi approved a new structure that reduces the number of slabs and alters the way several essential and luxury goods are taxed. From September 22, 2025, the new rates will come into effect, directly impacting household expenses, healthcare costs, and even the prices of vehicles and beverages.
The GST Council has streamlined the four-tier system of 5%, 12%, 18%, and 28% into two core slabs of 5% and 18%. At the same time, a 40% slab has been created for sin and luxury goods such as tobacco, high-end cars, caffeinated drinks, and certain leisure activities. The government hopes this rationalisation will ease compliance, bring relief to common citizens, and provide a boost to domestic consumption at a time when the economy is facing external pressures, including tariffs on exports.
For the average Indian household, the changes are most visible in the daily basket of goods. Food, healthcare, fertilisers, and several household products are set to become cheaper, while items linked with luxury consumption and harmful substances will get costlier. This approach aims to support mass consumers while continuing to draw higher revenue from products that are either harmful or exclusive to wealthier sections.
Cheaper essentials for households
A major relief has been offered in the area of food products. Milk products like ultra-high temperature (UHT) milk will now be free of GST, compared to the earlier 5%. Condensed milk, butter, ghee, paneer, and cheese, which were taxed at 12%, will now fall under the 5% or nil rate. Staple foods such as malt, starches, pasta, cornflakes, biscuits, chocolates, and cocoa products have also seen tax cuts, moving to 5% from earlier rates of 12–18%.
Dry fruits and nuts, including almonds, pistachios, cashews, hazelnuts, and dates, will now attract only 5% GST, down from 12%. Even sugar and confectionery items such as refined sugar, syrups, toffees, and candy have been shifted to the 5% slab. Popular snacks like namkeens, bhujia, mixtures, and similar packaged foods that were taxed at 18% will now come under the 5% rate, making them more affordable.
Packaged drinking water, including natural and artificial mineral waters without added sugar or flavour, has moved from 18% to 5%. Together, these changes mean that the average grocery bill is expected to reduce considerably, particularly for families that consume a wide variety of packaged foods and beverages.
Agriculture and rural support
The Council’s decision has also placed emphasis on supporting the agriculture sector. Fertilisers that earlier attracted 12% or 18% GST are now down to 5%. Inputs like seeds and crop nutrients have also been rationalised to 5%. Agricultural machinery such as diesel engines, pumps, threshers, sprinklers, and even composting machines will attract 5% tax instead of 12%. For tractors and their spare parts, including tyres, hydraulic pumps, and cooling systems, GST has been reduced from 18% to 5%.
This rationalisation is expected to reduce input costs for farmers and make agricultural operations more affordable. Lower taxation on fertilisers and machinery could help improve productivity while providing relief to the rural economy.
Healthcare and insurance relief
Healthcare has been given priority in the new GST structure. A large number of life-saving drugs that were taxed at 12% will now be exempt. Other medicines, health products, and devices such as thermometers, glucometers, and corrective spectacles will fall under the 5% bracket. This could reduce medical bills for households, especially those dependent on regular supplies of essential drugs.
Insurance has also been given tax relief. Individual life and health insurance policies, including family floaters, will no longer attract GST. Earlier, these policies carried a 12% tax. The decision is expected to encourage more people to take health cover at a time when medical costs are rising.
Consumer goods and appliances
Several household and consumer products are now cheaper. Toothpaste, toothbrushes, shampoos, soaps, face powders, and hair oil have moved from the 18% rate to 5%. Everyday items like tooth powder, feeding bottles, utensils, umbrellas, bicycles, bamboo furniture, and combs will also now be taxed at 5% instead of 12%.
Appliances such as televisions, air-conditioners, and dishwashers that were taxed at 28% have now been shifted to the 18% slab. Stationery products like notebooks, pencils, crayons, globes, and maps are now exempt, while erasers have been made nil from 5%.
In clothing and footwear, GST on most mass-market products has dropped from 12% to 5%. However, apparel and accessories priced above ₹2,500 will attract 18% tax, ensuring that affordable clothing remains cheap while higher-end products carry a higher levy.
Travel, construction, and vehicles
The GST on hotel rooms costing up to ₹7,500 per night has been reduced from 12% with input credit to 5% without input credit. Domestic air travel in economy class will now attract only 5% GST, making travel slightly cheaper for the middle class.
In the construction sector, cement has moved from the 28% slab to 18%, a step that may help reduce costs for housing and infrastructure. Sewing machines and their parts have also shifted to the 5% category, supporting small industries and tailoring businesses.
Vehicle buyers too will feel the impact. Two-wheelers up to 350cc will now attract 18% tax instead of 28%. Small hybrid cars will also benefit from the new rates, while electric vehicles continue at 5% GST. On the other hand, larger vehicles and luxury models remain in the higher tax bracket.
What gets costlier under new GST?
While essentials are cheaper, luxury goods and harmful products have been placed in the new 40% slab. Aerated drinks, caffeinated beverages, and other sugary soft drinks that were earlier taxed at 28% will now fall under this higher category. Non-alcoholic flavoured drinks and sweetened beverages are also included.
Automobiles above 1,200 cc, motorcycles over 350 cc, racing cars, yachts, and personal aircraft will attract the 40% rate. Tobacco and related products like cigarettes, gutkha, pan masala, and chewing tobacco will continue with the 28% tax plus cess until compensation loans are repaid, after which they too will move to 40%.
Leisure activities such as casinos, race clubs, online betting, lotteries, and IPL tickets are also part of the 40% category, ensuring that recreational spending in luxury sectors continues to bring high revenue to the exchequer.
