Finance Minister Nirmala Sitharaman on Wednesday unveiled what is being described as the most significant restructuring of India’s Goods and Services Tax (GST) framework since its launch in 2017. Speaking after the 56th meeting of the GST Council, she announced the roll-out of a simplified two-slab structure under “GST 2.0.” The reforms, which will come into force on September 22, coinciding with the beginning of Navratri, abolish the earlier 12% and 28% brackets, leaving just two standard rates—5% and 18%. At the same time, a new 40% slab has been introduced exclusively for sin and luxury goods.
Sitharaman emphasised that the sweeping reforms were finalised in a spirit of consensus, noting that every state was aligned on the issue of rationalisation. According to her, the overhaul not only simplifies the tax structure but also addresses long-standing concerns regarding the compensation cess. The unified approach, she added, reflects the council’s unanimous agenda of rate simplification.
The revised slabs will make a large number of everyday essentials significantly cheaper. Consumer products such as hair oil, soaps, shampoos, toothbrushes, tableware, and kitchenware have seen their GST rate slashed to just 5% from the earlier 18%. Many food items have either been exempted completely or shifted to the lower slab. Fresh dairy products like UHT milk, paneer, and Indian breads, including paratha, are now free from GST, while packaged goods such as namkeen, bhujiya, sauces, pasta, cornflakes, butter, and ghee have all been reduced to 5%.
Healthcare has also received a major boost, with thirty-three critical life-saving medicines moving from 12% to full exemption. Even corrective eyewear, such as spectacles and goggles, will now be taxed at only 5% instead of the previous 28%. In the housing sector, one of the most important reforms has been the reduction of GST on cement from 28% to 18%, a move expected to ease construction costs and make housing more affordable.
Automobiles and consumer durables have similarly benefited from this rationalisation. Goods such as air conditioners, dishwashers, and televisions larger than 32 inches, which earlier attracted 28% GST, now fall under the 18% slab. All television sizes have been standardised at 18%. Smaller vehicles like motorcycles under 350cc, three-wheelers, and compact petrol and diesel cars also see their GST rates drop to 18%. Even larger utility vehicles such as buses, trucks, and ambulances have shifted to the 18% category, while automobile spare parts are unified under the same slab.
Labour-intensive sectors are another clear winner of the reforms. Handicrafts, marble, granite blocks, and intermediate leather goods will now attract just 5% GST, bringing relief to small-scale industries. Reductions have also been made in raw materials, with natural menthol dropping from 12% to 5%, man-made fibre from 18% to 5%, and man-made yarn from 12% to 5%.
On the other hand, the new 40% slab has been reserved for products considered either luxurious or harmful to health. Sin goods such as paan masala, cigarettes, gutkha, bidis, and aerated or caffeinated beverages will now be taxed at this highest rate. Even fruit-based non-alcoholic drinks are included. Luxury items such as high-capacity motorcycles above 350cc, mid- to large-sized cars, yachts, and personal aircraft will also attract 40% GST.
The biggest change for the tobacco industry is the decision to levy GST on the retail sale price rather than the wholesale value. This ensures higher final prices for products like paan masala and tobacco, signalling the government’s intent to discourage consumption while generating more revenue.
Overall, “GST 2.0” marks a historic shift towards simplification, affordability, and targeted taxation. While everyday essentials, healthcare, housing, and small-scale industries stand to gain, the government has clearly tightened the net around luxury consumption and health-damaging products, creating a sharper contrast between basic needs and indulgence.
