NEW DELHI : In a sweeping reform of India’s indirect tax regime, the Goods and Services Tax (GST) Council has approved a new two-tier tax structure that will take effect from September 22, 2025.
Under the revamped framework, the current four-slab system of 5%, 12%, 18% and 28% will be replaced with just two principal rates — 5% and 18%. Everyday essentials and mass consumption goods will fall under the lower 5% slab, while most other items and services will be taxed at 18%.
To address revenue concerns, the Council has created a separate 40% category for luxury goods and so-called “sin products” such as tobacco, alcohol and high-end imports. This move is designed to safeguard government revenues while simplifying compliance for businesses and consumers.
Announcing the decision after the 56th GST Council meeting, Finance Minister Nirmala Sitharaman described the overhaul as “GST 2.0,” calling it a crucial step towards a simpler and more predictable tax system.
While industry leaders have welcomed the reform as a boost for consumer demand and business sentiment, several states have voiced concerns over potential revenue losses. Early estimates suggest that states could face a shortfall ranging from ₹47,000 crore to nearly ₹93,000 crore, depending on consumption trends and compensation mechanisms.
Economists, however, believe the streamlined structure could reinvigorate consumption and provide relief to sectors such as FMCG, apparel, automobiles, cement and hospitality, which are likely to benefit from lower effective rates.
The move is being seen as one of the most significant changes since the GST rollout in 2017, with the government betting that simplification will translate into greater compliance, stronger demand and ultimately, higher collections.