Only 5 And 18% GST Now In Centre's Big Move. 40% For Super Luxury Items

The complicated GST slabs that gave headaches to small traders after the flagship tax overhaul came into effect, was cleaned up by the government today, leaving only two slabs -- 5 and 18 per cent. The new structure will be implemented from September 22. For the common man, it means more money in hand. This, the government hopes, will be routed into the economy, giving it a significant boost and having a revenue implication of Rs 48,000 crore. 

Read: Individual Life And Health Insurance Policies To Be Exempt From GST

"These reforms have a multi-sectoral and multi-thematic focus, aimed at ensuring ease of living for all citizens and ease of doing business for all," Union Finance Minister Nirmala Sitharaman said after a meeting of the GST Council.

Hon'ble Prime Minister Shri @narendramodi announced the Next-Generation GST Reforms in his Independence Day address from the ramparts of Red Fort.

Working on the same principle, the GST Council has approved significant reforms today.

These reforms have a multi-sectoral and... pic.twitter.com/NzvvVScKCF

— Nirmala Sitharaman Office (@nsitharamanoffc) September 3, 2025

The Cheap, Expensive and Super Expensive

The biggest tax cuts have come on food, medicines, essential items, farm goods, green energy, small cars and bikes.  

Individual life and health insurance policies, including family floater, and 33 life saving drugs including anti-cancer medicines, which had a 12 per cent tax, will no longer be taxed. A massive chunk of medical items of regular use -- including thermometer and glucometer -- will be in the 5 per cent tax bracket. 

Read: GST Rates Revised: What Gets Cheaper

Aspirational items like television, air conditioners and motor bikes under 350 cc will come under the 18 per cent slab. But it would still be cheaper, with the earlier tax slab being 28 per cent. Small cars -- petrol vehicles up to 1200 cc and diesel vehicles up to 1500 cc -- will also be in the 18 per cent tax bracket. The rest will draw a tax of 28 per cent.  

Luxury items and sin goods have seen a heavy hike. There will also be a sin tax of 40 per cent that would apply to tobacco and tobacco related products, carbonated beverages, mid size and large cars and bikes above 350cc. 

Read: Tobacco Products, Carbonated Beverages: What Comes Under 40% GST

The rest of items -- especially daily essentials -- will be in the 5 per cent bracket. This includes hair oil, shampoo, soap and other toiletries,  dairy products, pasta, sauces and snacks. There will be no tax on bread, milk and paneer.    

Relief has been given to farmers, with agricultural implements coming down from 12 per cent to five per cent. Education has also been made more affordable with the tax on exercise books, note books, pencils, erasers and crayons coming down from 12 to 5 per cent. 

High Praise From PM Modi

In a post on X, Prime Minister Narendra Modi said, "During my Independence Day Speech, I had spoken about our intention to bring the Next-Generation reforms in GST... Glad to state that @GST_Council, comprising the Union and the States, has collectively agreed to the proposals submitted by the Union Government".

Read: Will Benefit Common Man, Farmers, Middle-Class: PM Modi On GST Overhaul

"The wide ranging reforms will improve lives of our citizens and ensure ease of doing business for all, especially small traders and businesses," he added. 

During my Independence Day Speech, I had spoken about our intention to bring the Next-Generation reforms in GST.

The Union Government had prepared a detailed proposal for broad-based GST rate rationalisation and process reforms, aimed at ease of living for the common man and...

— Narendra Modi (@narendramodi) September 3, 2025

The Current System And Why It Had To Change

The ongoing system has four slabs - 5, 12, 18, and 28 per cent. 

But the GST council found that the tax collected from the 18 per cent slab over the last eight years accounted for over two-thirds of the total GST revenue -- around 67 per cent.

The 12 per cent slab generated the lowest, an estimated five per cent of the inflow in the same period. The five and 28 per cent slabs yielded seven and 11 per cent, respectively. So it was decided to drop the two slabs - the 12 per cent because the revenue yield is insignificant and the 28 per cent because it was expected to prompt manufacturers to cut prices of luxury goods.

The 5 and the 18 per cent categories contributed a whopping 74 per cent of revenue from GST, which totalled Rs 11.37 lakh crore in 2020-21, sources said.

GST Was Unveiled 8 Years Ago

The Goods and Services Tax or GST, the country's biggest tax reform, was rolled out at midnight at Parliament's historic Central Hall on July 1, 2017 by Prime Minister Narendra Modi and then President President Pranab Mukherjee. Structured on the principle of "one nation, one tax, one market", the GST was flagged as a second Independence Day -- this time from a slew of indirect taxes. 

Initially there were five slabs which were later shrunk to four. But critics still claimed that India was one of the few countries with such a complex tax structure.

The process of filing quarterly returns for taxes online left small traders and MSME owners -- many of them unfamiliar with computers -- scratching their heads.

While most such teething troubles were sorted, there are still occasional delays in return filing, portal errors during high-traffic periods, and confusion over applicable rates due to multiple tax slabs.