India’s GST Overhaul: Major New Tax Rates to Slash Burden from September 22

In a landmark decision for the Indian economy, the GST Council has approved a sweeping tax reform that simplifies the Goods and Services Tax structure into two main slabs: 5% and 18%, with a rare 40% slab reserved for super luxury and sin goods. These changes will take effect from September 22, 2025, coinciding with the start of Navratri, as announced by Finance Minister Nirmala Sitharaman following the Council’s 56th meeting.

The overhaul aims to reduce the tax burden on common citizens, farmers, MSMEs, and other segments by cutting rates on essentials, streamlining GST slabs, and improving ease of doing business through automated registration and refunds. The decision was unanimously supported by ministers from 31 states and Union Territories despite initial concerns about state revenue losses.

Key highlights of the new GST regime include:

• Consolidated Tax Slabs: The earlier four slabs of 5%, 12%, 18%, and 28% have been replaced mainly by 5% and 18%, except for selected items.
• Special 40% Slab: This is applicable only to select super luxury, tobacco, cigarettes, and other sin/de-merit goods.
• Items With Reduced Rates: Essentials and daily-use goods, including soaps, small cars, air conditioners (slab reduced from 28% to 18%), household appliances, and fitness services, now attract lower taxes.
• Services and Hospitality: Fitness centers, yoga studios, medical labs, beauty and wellness services have moved from 18% to 5%. Educational services like private tuitions up to class 12 and vocational training are now nil rated. Hotels and restaurants see substantial rate cuts based on tariff and turnover.
• Exceptions: GST on gold, silver, and specified tobacco products remain unchanged or retain higher slabs for revenue considerations.

Prime Minister Narendra Modi lauded the decision, stating that the unified GST reforms embody cooperative federalism and will boost economic growth while easing the financial burden for middle-class and low-income citizens.

This reform is touted as the most significant GST overhaul since its inception in 2017, balancing revenue needs with social equity and consumption incentives.

The new tax rates and revised rules will impact a broad range of goods and services, reshaping pricing and consumption patterns across India. Taxpayers and businesses should prepare for changes when the rates apply from the September 22 deadline.