India’s new GST rates: What’s cheaper and costlier? Check full list

Key takeaways:

• 2 slabs only: 5% (essentials) & 18% (standard)

• 40% slab: Tobacco, pan masala, sugary drinks, high-end cars, yachts

• Effective date: 22 Sept 2025

• GST exemptions: life & health insurance policies

• Winners: FMCG, farm sector, insurance, mid-segment autos

• Risks: Revenue loss for states, compliance challenges

India’s indirect tax system just went through one of its biggest resets since 2017. The GST Council has collapsed the earlier 4 slabs into a simpler 2-slab structure of 5% and 18%. Additionally, a special 40% slab has been introduced for sin and luxury goods. The new rates take effect on 22 September 2025, following the Council’s 56th meeting in New Delhi.

The focus is clear: cheaper daily-use goods, lower insurance cost, relief for farmers, and a boost to automobiles & electronics. For markets, this is both a consumption trigger and a fiscal test.

What gets cheaper at 5%

• Daily-use: hair oil, soaps, shampoos, toothpaste, toothbrushes, tableware

• Food: butter, ghee, paneer (nil in some cases), UHT milk (0%), namkeen, bhujia, pasta, noodles, chocolates, coffee

• Healthcare: thermometers (18%→5%), medical O₂ (12%→5%), diagnostic kits, glucometers, corrective spectacles

• Farm: tractors (12%→5%), tractor tyres (18%→5%), drip irrigation, sprinklers, bio-pesticides

• Education: notebooks, maps, globes, pencils, crayons (12%→0%), erasers (5%→0%)

What moves to 18%

1. Automobiles: small cars (≤1200 cc petrol, ≤1500 cc diesel), motorcycles ≤350 cc, 3-wheelers, buses & trucks. All down from 28%→18%

2. Parts: uniform 18% on all auto components

3. Electronics: ACs, TVs >32 inches, monitors, dishwashers, projectors cut from 28%→18%

The 40% slab

Applied to:

• Tobacco & paan masala (gutka, cigarettes, cigars, cheroots, cigarillos, and equal substitutes)

• Sugary drinks (carbonated, caffeinated)

• Luxury cars & bikes (>1200 cc petrol, >1500 cc diesel, >350 cc bikes)

• Yachts, private aircraft/helicopters

• Online gambling & gaming services (GST law can still apply to banned or restricted activities because taxation and legality are treated separately)

Market Overview

1. Inflation: Price relief in FMCG, food & farm gear will cool retail inflation marginally.

2. Consumption: Festive demand could rise in FMCG, automobiles, electronics.

3. Revenue: Govt. and states face near-term GST shortfall. Compensation formula still unclear.

4. Sector impact:

   • FMCG: cost advantage → stronger volumes.

   • Insurance: exemption lifts affordability, widens coverage.

   • Autos & appliances: rate cuts can release pent-up demand.

   • Luxury goods & tobacco: higher rates dampen demand.

Risks ahead

1. Classification disputes: many items straddle categories. Mis-mapping = penalties.

2. State finances: revenue gap from 18% cap will test fiscal stability.

3. Execution: ERP & billing systems must be GST-ready by 22 Sept.

Overview: India’s new GST slabs

India’s new GST 2.0 overhaul compresses the country’s tax system into two clear slabs, aiming to reduce consumer prices on essentials while shifting the burden to luxury and sin goods. Households, farmers and insurance buyers gain immediate relief while the automobile and FMCG sectors may see demand revival. At the same time, state revenues face short-term pressure, and compliance adjustments will test businesses.

The net effect hinges on how fast firms pass on tax cuts to consumers. States must manage near-term revenue gaps; higher demand will decide if reduced rates balance the fiscal loss.