GST Overhaul 2025: Food, Medicine Cheaper; Luxury Cars Costlier
From toothpaste to tractors, GST cuts aim to boost spending; 40% slab reserved for luxury cars, tobacco and aerated drinks
- GST Council cuts slabs to 5% and 18%, with a 40% luxury/sin goods slab.
- Essentials, medicines, appliances, farm machinery to get cheaper.
- Aerated drinks, luxury cars, tobacco, gaming services to get costlier.
- New rates effective September 22, 2025.
Harshita Rai
In a sweeping reform, the Goods and Services Tax (GST) Council on Wednesday approved the most comprehensive overhaul of India’s indirect tax regime since its introduction in 2017. The Council slashed duties across a wide range of household essentials, medicines, automobiles, and appliances, while introducing a steep 40% slab for luxury items, tobacco, and aerated drinks.
The decision comes amid the Centre’s bid to revive domestic consumption and cushion the impact of U.S. tariffs on Indian goods, signaling a bold attempt to simplify GST and reduce compliance burdens.
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Two-Slab Structure Replaces Four-Tier GST
The existing four-rate structure of 5%, 12%, 18%, and 28% has been replaced with a streamlined two-tier system of 5% and 18%, along with a special 40% slab for select luxury and sin goods.
The new rates will be applicable from September 22, barring pan masala, gutkha, cigarettes, and bidi, which remain under the cess regime.
What Gets Cheaper?
Food & Beverages
- Chapati, paranthas, paneer, pizza bread, khakra – now tax-free (nil from 5%).
- Butter, ghee, dry fruits, condensed milk, jams, namkeen, ice cream, cereals, and biscuits – cut to 5% from 18%.
- Plant-based and soy milk drinks – down to 5% from 18%/12%.
Household & Daily Use
- Toothpaste, shampoo, soap, talcum powder, toothbrushes, hair oil – 5% from 18%.
- Utensils, bicycles, bamboo furniture, umbrellas, feeding bottles – 5% from 12%.
Appliances & Stationery
- Air-conditioners, dishwashers, TVs – 18% from 28%.
- Notebooks, pencils, crayons, maps, erasers – nil tax.
Footwear & Textiles
- GST reduced from 12% to 5%, making mass-market products cheaper.
Healthcare
- Life-saving drugs, medical devices, diagnostic kits – nil or 5% (from 12–18%).
- Thermometers, oxygen, glucometers, corrective spectacles – cut to 5%.
- Life & health insurance policies – nil GST.
Travel & Hospitality
- Economy flight tickets – 5% GST.
- Hotel tariffs up to ₹7,500 – slashed to 5%.
Automobiles & Agriculture
- Motorcycles up to 350 cc, small hybrid cars – 18% from 28%.
- EVs continue at 5% GST.
- Cement – 18% from 28%.
- Agricultural machinery, hand pumps, sprinklers, tractors – 5% from 12%.
- Fertiliser inputs & biopesticides – 5% from 12–18%.
Services
- Salons, health clubs, gyms, yoga centers – 5% from 18%.
What Gets Costlier?
Aerated & Sweetened Drinks
- Coca-Cola, Pepsi, other carbonated and caffeinated beverages – 40% GST (from 28%).
Automobiles & Luxury Goods
- Cars above 1,200 cc, motorcycles over 350 cc, yachts, aircraft for personal use – 40% slab.
Tobacco & Related Products
- Tobacco continues at 28% + cess until COVID-era compensation loans are repaid, thereafter to move to 40% GST.
Leisure & Gaming
- Casinos, horse racing, online betting, and IPL tickets – 40% GST.
Why It Matters
The overhaul is expected to:
- Simplify India’s GST regime into a two-rate structure.
- Provide relief to households and stimulate consumption.
- Spur investment and job creation, with positive impact on agriculture, healthcare, and small businesses.
- Reinforce the government’s intent to tax luxury and sin goods heavily, while easing burden on essentials.
Analysts say this move could provide a strong demand-side push at a time when global headwinds and tariff challenges are weighing on the Indian economy.
