From Groceries, Medicines, Insurance to Small Cars: What Gets Cheaper and Costlier under GST 2.0 Rollout from 22nd Sept
Moneylife Digital Team 04 September 2025
In a landmark move to simplify India’s indirect tax regime, the goods and services tax (GST) council has approved sweeping reforms, collapsing the four-tier tax structure into two basic slabs of 5% and 18%, with a new 40% rate for sin and luxury goods. The changes, branded as GST 2.0, will take effect from 22 September 2025 and are expected to make a wide range of household items, healthcare products, textiles and agricultural inputs cheaper.
 
The 56th meeting of the Council, chaired by Union minister of finance Nirmala Sitharaman and attended by state finance ministers, finalised the rollout of the simplified structure. The reforms follow prime minister (PM) Narendra Modi’s Independence Day announcement of next-generation GST changes focused on easing the tax burden for the common man, farmers, women and small businesses.
 
Essentials and Food Products See Big Relief
Every day food and grocery items are among the biggest beneficiaries. Ultra-high temperature (UHT) milk, paneer, roti, paratha, and other Indian breads will now attract nil GST. Condensed milk, butter, ghee and cheese have been reduced from 12% to 5%. Dry fruits like almonds, pistachios, cashews and dates will also see their tax rates fall from 12% to 5%.
 
Packaged foods, including pasta, noodles, sauces, biscuits, chocolates, cocoa products, cornflakes and malt-based snacks, will now face a 5% GST instead of 12%–18%. Popular savouries such as namkeens, bhujia, and mixtures, earlier taxed at 18%, will now attract just 5% GST. Mineral waters and aerated waters without added sugar will also move to the 5% bracket.
 
 
Agriculture, Fertilisers and Renewable Energy
Farmers and the agriculture sector stand to gain with GST on fertilisers cut from 12%–18% to 5%. Agricultural machinery, like tractors, soil preparation equipment, harvesting machines and fodder balers, will also move to the 5% slab. Renewable energy devices and components will attract 5% GST instead of 12%, lowering costs for solar and green energy projects.
 
Healthcare and Insurance Made Cheaper
Healthcare has received a major push, with 33 lifesaving drugs reduced from 12% to nil and three critical drugs for cancer and rare diseases moved from 5% to nil. All other medicines will now attract 5% GST instead of 12%. Medical devices, including diagnostic kits, glucometers, bandages and surgical supplies, have been reduced from 12%–18% to 5%.
 
In a move to improve affordability and expand insurance coverage, the Council exempted all individual life and health insurance policies from GST.
 
 
Consumer Goods, Textiles and Automobiles
 
Mass-use items such as soaps, shampoos, toothpaste and bicycles will see rates slashed from 12%–18% to 5%. Footwear and textiles up to Rs2,500 will now fall in the 5% bracket.
 
The automobile sector will benefit from GST cuts on small cars and motorcycles up to 350cc, reduced from 28% to 18%. The rate on cement has also been brought down from 28% to 18%, a long-standing demand of the construction sector.
 
What Gets Costlier
 
While many goods will become cheaper, the Council retained a 40% special slab for tobacco, pan masala, gutkha, cigarettes, high-end liquor, sugary drinks and luxury cars. Moreover, taxation on tobacco and related products will now be calculated based on retail sale price (RSP) rather than transaction value, tightening compliance and potentially raising costs for manufacturers.
 
Imported armoured luxury sedans will remain exempt only in special circumstances, such as procurement by the president’s secretariat.
 
Institutional Reforms and Trade Facilitation
 
The council also approved operationalisation of the GST appellate tribunal (GSTAT) by the end of September for filing appeals, with hearings to commence by December 2025. This, the government said, will improve dispute resolution, consistency in rulings and ease of doing business under the GST regime.
 
A Step Towards Simplification
 
Introduced in July 2017, GST initially had four tax slabs of 5%, 12%, 18% and 28%, with additional cess on luxury and demerit goods. With GST 2.0, the government has moved towards a simplified structure of two slabs, fulfilling a long-standing demand from industry and taxpayers.
 
The finance ministry says the reforms are expected to “improve the quality of life of every citizen” by reducing the tax burden, correcting inverted duty structures and stimulating economic growth.
Comments
kathirhr
3 months ago
Reducing GST & Raising Income tax slabs are a welcome factor, but the government want people to spend more rather than saving.

Government just concentrates on boosting the consumption and not boosting the saving habits among people.

Children are least taught about civic sense or financial knowledge in school.

Which will lead to a society like USA, where most of the people spend, all of the money they earn and then borrow to spend.

A country is its people and people is the country. So as the people becomes debt-ridden the country will also do so and on one find day both the country & people will collapse.

The same situation USA is right now in with $37 Trillion of debt and every year the debt compounds about $3 to $5 trillion. By 2030 USA would approximately $55–60 trillion.

Are we heading towards the same situation by following western countries ?

Where as countries like Brunei, Macao, Hong Kong, Liechtenstein, Norway, Kuwait, Qatar are sitting on Zero debt and cash rich.
jawaharlalmoondra
3 months ago
In case of Automobile where dealers carry stock of Cars with 28% GST plus 21% Compensation Cess and the Compensation Cess has been abolished and GST rate has been increased from 28% to 40%. How the amount held in credit ledger on account of Compensation Cess shall get adjusted has not been cleared. As per statement of CBIC the automobile dealers have to bear the burnt of around Rs. 40,000 (Forty Thousand Crores) of Compensation Cess credit by forgetting it.

Many of the dealers carrying stocks of vehicles and making fresh purchases up to 21/09/2025 shall be on road and may have to close their shutters.

Requesting Finance Ministry to clear the understanding immediately. There shall be no movement of stocks of Vehicles between 4th Sept to 21st Sept 2025.
Free Helpline
Legal Credit
Feedback