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GST Overhaul Effective 22 September 2025: Key Highlights for Businesses and Consumers

The Good and Service Tax (GST) Council has introduced one of the most sognificant reforms since GST's inception in 2017. Effective 22 September 2025, the new framework - commonly reffered to as GST 2.0- simplifies the tax structure, reduces rates on essential goods and services, and provides targeted relief to consumers and industries.  

This reform is expected to make compliance easier for businesses while also improving affordability for households.

Key Changes at a Glance

Simplified Rate Structure

  • The earlier four-tier system (5%, 12%, 18%, 28%) is replaced by two primary slabs - 5% and 18%. 
  • A special 40% rate applies to luxury and “sin” goods such as tobacco, pan masala, aerated sugary drinks, and betting services. (Implementation on tobacco products has been deferred for now.)

Relief on Essentials

  • Household products including soaps, hair oil, toothpaste, chocolates, noodles, pasta, and cooking fats like ghee and butter now fall under the 5% slab.
  • Certain food products such as paneer, bread, and ultra-high-temperature milk have been made tax-free (0%).

Insurance Premiums Exempted

  • Life and health insurance policies - including term plans, ULIPs, and family/ senior citizen health policies - are now exempt from GST. This reduces policyholders’ costs by around 18%, making insurance more accessible.

Automotive Sector Adjustments 

  • Small cars (petrol up to 1200 cc, length under 4 metres), motorcycles below 350 cc see GST reduced to 18% 
  • Electric vehicles continue to attract only 5% GST.
  • Luxury vehicles and SUVs will now be taxed at a uniform 40%.

Services and Utilities

  • Beauty and wellness services such as salons, yoga centres, and fitness clubs are reduced from 18% to 5%.
  • Coal and related utilities have been rationalised under the 18% slab, keeping costs stable.

Implications 

For Consumers

  • Lower GST on essentials and insurance translates into direct savings.
  • Affordable vehicle and appliance prices may encourage discretionary spending during the festive season.

For Businesses 

  • The move to fewer tax slabs simplifies compliance and reduces classification disputes.
  • Small and medium enterprises (SMEs) can expect smoother invoicing and clearer input tax credit claims.

For the Economy 

  • While the government estimates a short-term revenue loss of approximately ₹48,000 crore, higher consumption and economic activity are expected to offset this gap over time.

The GST changes effective from 22 September 2025 represent a decisive step towards a more streamlined and equitable tax system. By easing the burden on households, simplifying compliance for businesses, and maintaining higher taxation on luxury and non-essential items, the reform seeks to balance growth with fiscal responsibility. As India enters the festive season, these reforms are expected to stimulate demand and strengthen confidence across industries.