In a landmark move hailed as one of the boldest reform pushes since the introduction of the Goods and Services Tax (GST) in 2017, the government has formally notified revised GST rates following the 56th GST Council meeting. Effective September 22, 2025, the new notification replaces the earlier Notification No. 1/2017-Central Tax (Rate) and represents a major step towards rationalising slabs, easing compliance, and lowering the tax burden on consumers.
The revision comes at a critical time, just ahead of the festive season, offering the potential to boost demand across key consumption categories and provide a timely impetus to the Indian economy. Experts have emphasised that the new rates are not merely about price cuts but reflect the maturity and evolution of the GST framework.
Key changes in GST rates
1. The new GST structure simplifies slabs and reduces rates on multiple everyday items. Key highlights include:
Mass consumption goods: Dairy items, packaged foods, toiletries, and household products will now attract 5% GST, down from 12–18%.
2. Consumer appliances and vehicles: Previously taxed at 28%, these goods will now be subject to 18% GST.
3. Healthcare and insurance: Life and health insurance for individuals, along with some critical medicines, are now exempt from GST.
4. Construction materials: Sand lime bricks will move from 12% to 5%, potentially lowering housing and infrastructure costs.
5. Technology and new-age products: Drones will face a uniform GST of 5%.
6. Hospitality and wellness services: Hotel stays under ?7,500 per night, as well as beauty and wellness services, will be taxed at 5% without input tax credit.
7. Luxury and sin goods: A new 40% GST slab will apply to high-end and “sin” products, including cigarettes.
The government expects these measures to reduce prices on more than 50 commonly consumed goods, translating directly into savings for households. Some companies, including Mother Dairy, have already announced price reductions on dairy and packaged food products, effective from September 22.
Consumer and industry implications
“This rate rationalisation will make many everyday items cheaper. Things like dairy products, packaged food, household goods, toiletries, consumer appliances, two-wheelers, and cars will see a direct tax cut, benefiting the wallet of the common man while meeting the aspirations of Indian consumers,” said Saurabh Agarwal, Tax Partner at EY.
The cuts are expected to ease household budgets and stimulate demand across consumer durables, automobiles, and packaged goods. Experts also point out that the move could ease inflationary pressures at a time when the cost of living remains a major concern for Indian consumers.
From an industry perspective, the notification underscores the need for businesses to act swiftly.
Although the formal anti-profiteering law has not yet been notified, government officials are closely monitoring over 50 commonly used goods to ensure that tax reductions are passed on to consumers.
“The government is ensuring that the consumer gets the full advantage of the tax reduction,” said Rajat Mohan, Senior Partner at AMRG & Associates. “With clarity now provided, the ball is in the industry’s court. Businesses must promptly update systems, revise pricing, and ensure smooth implementation across supply chains. The onus lies on trade and industry to pass on the benefit and align compliances in a timely manner.”
Echoing to other experts, Ikesh Nagpal, Lead-Indirect Tax, AKM Global added that these changes signal the government’s intent to simplify structures, ease compliance, and make the tax regime more equitable.
"However, the Council’s proposal to shift pan masala, gutkha, cigarettes, and other tobacco products to an RSP-based levy has not yet been operationalised; these remain under the existing GST plus Compensation Cess regime until cess borrowings are cleared. Further clarifications on service-related matters, including restaurant classifications, are expected through separate notifications," he said.
Reform significance and long-term vision
Experts say the current rationalisation is a phased step towards a more unified and efficient GST system. “From a mid- to long-term perspective, we should aim for a unified or dual-rate structure. India’s diverse economy and significant income disparities make this a complex transition. However, this rate rationalisation is a major move in that direction,” Agarwal added.
The next logical step, according to experts, would be to bring critical sectors such as electricity, aviation turbine fuel (ATF), and natural gas under GST, further streamlining the indirect tax framework.
Abhishek Jain, Partner & National Head, Indirect Tax at KPMG India, said, “The GST rate reduction notifications, in line with the Council’s announcements, would reduce prices, boost consumption, and cut classification disputes, making GST a simpler and more efficient tax. This reform is a positive signal for consumers and businesses alike, encouraging compliance and creating predictability.”
Rahul Shekhar, Partner – Indirect Tax at Nangia Andersen LLP, highlighted that the reform reduces complexity dramatically. “Starting September 22, 2025, the GST regime will embrace a cleaner, sharper framework with two main slabs of 5% and 18%, and a separate 40% levy for sin and luxury goods. This simplified structure not only helps consumers but also reduces disputes and makes compliance easier for businesses.”
Why it matters
The notification marks a decisive push to make GST more transparent, consumer-friendly, and easier to administer. By lowering the cost of essential goods and services, the reform promises to boost consumer sentiment during the festive season while also easing inflationary pressures.
For households, this means immediate relief on items ranging from daily staples to appliances and personal care products. For businesses, it signals the need to revise pricing structures, streamline supply chains, and ensure timely compliance.
As Saurabh Agarwal summed up, “The benefits of rationalisation, if passed on in full, will directly ease the burden on the common man while making the GST system more transparent and efficient. It is a win-win for both consumers and the economy.”
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