GST Reforms: Essentials Get Relief, Luxury Faces the Heat

India’s tax landscape will change dramatically this September as the country ushers in its most ambitious reform since the launch of the Goods and Services Tax (GST) in 2017. Effective September 22, 2025, the GST will move to a streamlined, two-slab system—5% and 18%—plus a freshly minted 40% rate for luxury and “sin” goods. The overhaul promises to slash tax rates on a swath of daily essentials, appliances, and services while targeting higher taxes only at the priciest and most harmful products.

Why This GST Revamp Was Needed

India’s GST, a “one nation, one tax” system, was long criticized for its confusing web of five slabs (0%, 5%, 12%, 18%, and 28%) and cesses. From a consumer’s perspective, this created price anxiety and made compliance a headache for businesses and tax officials alike. Policymakers finally responded to the chorus for clarity and relief: the new, simplified system dismantles the complex scaffold and breathes fresh life into consumer demand as India navigates global and domestic headwinds.

What’s Cheaper: Relief for Every Household

The new GST has slashed rates on hundreds of items that fill Indian kitchens, classrooms, and bathrooms. Hair oil, shampoo, butter, ghee, biscuits, chocolates, ice cream, home appliances, even personal health and life insurance: most move to the 5% slab. Electronic goods like TVs, air conditioners, fridges, and small cars drop from 28% to just 18%. Cement, household kitchenware, stationery (including pencils, notebooks, and charts), footwear, and nearly all packaged food now sit at 5%.

Services are not left behind—health clubs, fitness centers, and hotel stays under ₹7,500 a night now attract just 5% GST. Medical items such as life-saving drugs and diagnostic kits are either GST-exempt or taxed at only 5%. Everyday travel costs, farm equipment, and agri-inputs also get rate cuts.

What’s Costlier: Luxury and Sin Goods in Focus

The only major tax hike comes for luxury cars, premium bikes, aircraft, yachts, and “sin” goods: this small category now carries a flat 40% tax, replacing the old system of 28% plus special cess. Tobacco, pan masala, and high-sugar drinks like colas finally find themselves squarely penalized, both for revenue and public health reasons. Some tobacco-related products will stay on the old slab until compensation cess loans are repaid, but the intention is clear—make discretionary, non-essential consumption pay.

Who Benefits? The Economy at Large

This GST rationalization brings the biggest relief to India’s growing middle class, rural families, and small businesses. By lowering the cost of must-have goods and services, it’s expected to spur demand and ease inflation, especially ahead of the festival season. MSMEs and manufacturers will see simplified compliance, while consumers enjoy lower prices and less confusion. With both slabs and refunds now system-driven, the process is set to get speedier and more transparent for tax filers.

What Gets Cheaper: Sector-Wise Gains

The reform promises to make essentials more affordable and streamline sectoral tax compliance. Here’s a breakdown of key sectors and the changes that matter most:

Everyday Essentials at Lower GST
From milk and butter to biscuits and juices, GST has dropped significantly to benefit households.

Item	Old GST	New GST
Ultra-high-temperature milk	5%	Nil
Butter, ghee, cheese	12-18%	5%
Packaged biscuits, cakes, ice cream	18%	5%
Chocolates, confectionery	18%	5%
Soft drinks, sodas	28%	40%

Healthcare Relief for All
Life-saving drugs, diagnostic kits, and medical devices see major GST cuts, making healthcare more accessible.

Item	Old GST	New GST
Life-saving drugs, vaccines, diagnostics	12-18%	0-5%
Medical devices, thermometers	12-18%	5%
Insurance premiums (life, health, family)	18%	Nil

Daily Essentials Get Cheaper
Shampoo, soaps, toothpaste, and even kitchenware now come under reduced GST, making everyday living more affordable.

Item	Old GST	New GST
Shampoo, hair oil	18%	5%
Toothpaste, soap	18%	5%
Utensils, kitchenware	12%	5%

Big-Ticket Items Now More Affordable
From TVs and refrigerators to washing machines and even small vehicles, GST cuts bring relief to households upgrading their appliances.

Item	Old GST	New GST
TVs, refrigerators, ACs, washing machines	28%	18%
Small passenger vehicles	28%	18%

Travel & Stay at Lower Prices
Hotel rooms, economy flights, and wellness services now come with reduced GST rates.

Item	Old GST	New GST
Hotels ≤ ₹7,500/night	12%	5%
Health clubs, gyms, beauty services	18%	5%
Life/health insurance	18%	Nil

Boost to Infrastructure
Cement and other materials see a rate cut, supporting housing and infrastructure growth.

Item	Old GST	New GST
Cement	28%	18%

Affordable Fashion for All
Mass-market footwear and textile products now fall under reduced GST, making clothing and essentials lighter on the wallet.

Item	Old GST	New GST
Manmade yarn/fibre	12-18%	5%
Apparel/footwear (mass mkt.)	12%	5%

Wheels Get More Affordable
Small cars and two-wheelers now attract lower GST, while luxury vehicles face steep hikes.
Item Old GST New GST
Luxury vehicles, aircraft, yachts 28% + cess 40%
Pan masala, tobacco, aerated drinks 28% + cess 40%
High-end motorcycles 28% 40%

Item	Old GST	New GST
Luxury vehicles, aircraft, yachts	28% + cess	40%
Pan masala, tobacco, aerated drinks	28% + cess	40%
High-end motorcycles	28%	40%

Who Gains and What’s Next

With rate cuts targeting the broad base of daily consumables and everyday services, India’s middle class and MSMEs gain the most. The move is widely expected to lower inflationary pressures, put more money in the average household’s pocket, and simplify business compliance. Importantly, the few upward revisions—largely confined to ultra-premium cars, tobacco, and luxury goods—help compensate for revenue gaps while nudging better public health outcomes.

The Big Picture

India’s GST reform in 2025 is more than just a rate rationalization; it is a structural overhaul designed to revitalize consumption, enhance compliance, and fuel broad-based economic growth. With most goods and services now in just two brackets, clarity returns for the consumer, and the dream of “one nation, one tax” comes a little closer to reality.
Final Word

For households, industry, and investors, India’s 2025 GST reform spells welcome clarity and fairer pricing in daily life. It marks a bold step in India’s ongoing economic modernization—simplifying taxes, encouraging spending, and giving the “one nation, one tax” slogan real substance for millions of people.