The 56th GST Council meeting, chaired by Finance Minister Nirmala Sitharaman, has approved a major rationalisation of GST slabs, simplification in rates, and changes aimed at easing tax burden for common goods, while increasing or maintaining rates for luxury / “sin” items.
GST Changes from September 22, 2025 Key Changes:
| Aspect | What’s new / changed | Effect / Purpose |
|---|---|---|
| Tax slabs slashed | The previous four major goods‑&‑services rate slabs (5%, 12%, 18%, 28%) are being largely reduced to two standard rates: 5% and 18%, plus a higher rate of 40% for luxury or sin / demerit goods. ([India Today][1]) | Simpler structure, less confusion, easier compliance; relief for many items, especially essentials. |
| Effective date | Most of the changes take effect from 22 September 2025. ([IBEF][2]) | Allows time for businesses / consumers to prepare. Also coincides with the festive season (Navratri) to maximize benefit. |
| Sin / luxury goods | Items like pan masala, cigarettes, gutkha, bidis, some tobacco‐related products, high‑end cars, motorcycles over 350 cc, luxury vehicles, yachts, personal aircraft etc., will be taxed at 40%. ([India Today][3]) | Higher tax rate meant to discourage consumption of luxury/unhealthy items and compensate for revenue loss from reducing GST elsewhere. |
| Tobacco & related items’ transition | Some of these sin/tobacco items will continue under the old rates (GST + compensation cess) until certain obligations under the Compensation Cess account (loans, interest) are discharged. ([The Financial Express][4]) | A way to ensure that revenue streams tied to cess obligations are not abruptly cut off. |
| Goods becoming cheaper | Many everyday items will see tax cuts: household goods like soaps, toothbrushes, hair oil; kitchenware; common food items, bread/parathas etc.; certain dairy / milk products; many medical or health‑related goods; fertilizers; renewable energy components. ([India Today][5]) | Reduce cost of essentials; help consumers, especially middle & lower income; also help sectors with high volumes. |
| Goods with unchanged or increased tax | Luxury vehicles, motorcycles over 350cc, some beverages, luxury / non‑essential goods will face higher rates (40%). Also, sin goods yet to be transitioned. ([India Today][1]) | |
| Services | Some services will also be brought into revised slabs. For example, beauty & wellness services (gyms, salons, yoga centres) will now attract 5% instead of 18%. Passenger transport services remain at 5% (without input tax credit), though operators can opt for 18% if they want credit. ([India Today][3]) |
Which Items / Sectors See Big Difference
Here are examples of what will get cheaper, what will get costlier, under the new regime:
- Cheaper
• Bread, parathas, Indian breads; UHT milk; paneer; chenna; other dairy items.
• Household items: soaps, shampoos, hair oil, toothbrushes, tableware, kitchenware.
• Fertilisers, agricultural machinery (sprinklers, drip systems etc.), renewable energy
devices, textiles, footwear (mass market) etc.
• TVs, air conditioners, white goods: these are moving down from higher rate slabs.
2. Costlier or staying high
• Luxury / large cars; motorbikes above 350cc.
• Sin / luxury goods like pan masala, tobacco, cigarettes, gutkha etc.
• Certain beverages: carbonated / caffeinated ones or sugary ones may move up
Rationale & Impacts
- Simplification: Less slab confusion, less litigation / classification disputes. Having fewer slabs helps businesses in pricing, accounting, compliance. ([The Indian Express][7])
- Relief for common people: Everyday goods get cheaper; inflationary pressures may reduce slightly. ([India Today][5])
- Trade‐off for luxury / sin sectors: Those who consume or produce luxury / sin goods will face higher burdens. Could lead to some consumption substitution.
- Budget / Revenue management: The government expects some revenue loss from rate cuts, but presumably offset through higher rates on luxury items and better compliance. Also, the phasing of cess / tobacco transition helps cushion the fiscal hit. ([The Financial Express][4])
- Benefit to MSMEs / producers: Items used heavily as inputs (e.g. man‑made fibre, yarn, agricultural machinery) getting lower rates helps reduce cost of goods, improve competitiveness. ([India Today][3])
Things to Watch / Transitional Issues
- The compensation cess for sin goods remains until certain financial obligations are cleared. So for some items, the rate change is not immediate and depends on the timeline of debt / loan repayment. ([The Financial Express][4])
- Classification disputes: Even with rationalisation, there may be edge cases — what counts as “luxury” or “sin”, or which items exactly fall under which slab. Businesses will need clarity and possible re‑tooling of accounting / pricing.
- Input Tax Credit (ITC) and transitional credit situations: Changes in slabs could affect eligibility or ITC structure. Businesses may need to adjust workflows and pricing.
- Customs / import duty interactions might be affected depending on how imported goods were treated under old slabs and what changes are for them.
- Impact on consumers may vary: Some cost reductions might take time to reflect in market prices depending on supply chain, inventories, etc.
