New GST Rates 2025: Essentials Get Cheaper, Luxury Goods Costlier Under GST 2.0

India’s tax system is witnessing its biggest transformation since the rollout of GST in 2017. The Union Government has officially launched GST 2.0 reforms from September 22, 2025, simplifying the tax structure and bringing relief to consumers on everyday essentials. At the same time, luxury and harmful goods are now costlier, reflecting the government’s twin goals of making life affordable for the common citizen while discouraging consumption of unhealthy or high-end items.

The new GST regime reduces the number of slabs, clarifies HSN codes, and introduces special treatment for priority items like food, healthcare, and small automobiles. Let’s break down the key updates, the full list of changes, and what it means for households, industries, and India’s economy.

GST 2.0 – The New Structure

The earlier GST system had five main slabs (0%, 5%, 12%, 18%, and 28%), leading to confusion and disputes. Under GST 2.0, the slabs have been reorganized into four categories:

• 0% (Zero GST): For basic food items and essential goods.
• 5%: For most kitchen staples, packaged foods, and affordable goods.
• 18%: For consumer durables, electronics, hotels, services, and automobiles.
• 40% (Sin & Luxury Tax): For tobacco, cigarettes, gutka, high-sugar drinks, luxury cars, and premium products.

This restructuring aims to simplify compliance and reduce litigation while ensuring that taxation is fair and progressive.

What Gets Cheaper?

Daily Essentials

• Milk, paneer, roti, paratha, khakhra → 0% GST.
• Butter, ghee, cheese, curd → shifted from 12% to 5% GST.
• Coffee, tea, dry fruits, honey → reduced GST rates.

Consumer Goods

• Air conditioners, refrigerators, washing machines, TVs (below 40 inches) → GST reduced from 28% to 18%, making them significantly cheaper.
• Mobile phones and small laptops also see lower rates, encouraging digital access.

Automobiles

• Small cars (hatchbacks and compact sedans) → tax reduced, resulting in price cuts of up to ₹1.2 lakh in some models.
• Two-wheelers → now taxed at 18% instead of 28%.

What Gets Costlier?

While many households cheer the price cuts, certain categories face higher GST rates:

• Tobacco, cigarettes, gutka, e-cigarettes → now taxed at 40%, up from 28%.
• Aerated and sugary drinks → shifted to 40% slab.
• Luxury cars, SUVs, and premium motorcycles → moved to 40% slab, increasing costs by several lakhs.
• High-end branded clothing, jewelry, premium cosmetics → subject to higher rates.

Impact on Households

For middle-class families, GST 2.0 feels like a “festival of savings”, as PM Modi described it. A weekly grocery basket including milk, butter, cheese, bread, tea, and packaged snacks is expected to cost 5–10% less than before. The drop in prices of electronics and two-wheelers will also help households upgrade appliances and mobility options.

At the same time, families with lifestyle habits involving tobacco, alcohol, or luxury shopping will need to spend more. The intent is clear: reward responsible consumption and penalize excess.

Industry Reactions

FMCG & Retail

Companies like Amul have already slashed butter and cheese prices. FMCG brands expect higher demand, especially during the festive season, as consumers take advantage of cheaper kitchen staples and packaged food items.

Automobile Sector

Car manufacturers like Honda and Maruti Suzuki announced immediate price cuts. Hatchbacks, sedans, and two-wheelers are now more affordable, and industry experts predict a 20–25% jump in sales during the Navratri-Diwali season.

Healthcare & Pharma

Medical devices and essential drugs retain low or zero GST, ensuring affordability for patients. The government has clarified that there will be no tax hike on life-saving medicines.

Luxury & Beverage Industry

Alcoholic beverage makers, soft drink companies, and premium brands are unhappy with the sharp rise in taxes. However, the government is firm on discouraging over-consumption of such goods.

Government’s Position

Finance Minister Nirmala Sitharaman emphasized that the objective is simplification, transparency, and consumer benefit. By cutting down slabs and removing ambiguities, GST 2.0 is expected to reduce disputes and improve compliance.

PM Modi called the reform a “GST Bachat Utsav”, stressing that it will make everyday living more affordable for ordinary Indians while boosting domestic manufacturing. The reform also aligns with the government’s “Make in India” push, as lower GST rates will encourage purchase of Indian-made goods.

Economic Impact

• Boost to Consumption: Lower GST on food and electronics is expected to trigger higher spending, especially during the festive season.
• Higher Compliance: Simplified slabs and clear HSN codes reduce confusion for businesses.
• Tax Revenue Stability: While cuts on essentials reduce tax inflow, the sharp rise in sin/luxury tax balances revenue.
• Positive Market Sentiment: Stock markets have reacted positively, especially auto and FMCG stocks.