“From Sept 22 – GST made simple: 5%, 18% & 40% for sin goods”
The 56th GST Council meeting in 2025 has introduced what the Government has called “GST 2.0”, which is a landmark rationalisation of rates and structural reforms in the GST framework.
Key Points from the Council Decisions
- New Rate Structure
- Only two principal slabs: 5% (merit rate) and 18% (standard rate).
- 40% demerit rate for super luxury, sin, and demerit goods (like pan masala, tobacco, big luxury cars, etc.).
- Earlier slabs of 12% and 28% have been merged into the two-slab structure.
- Goods – Major Rate Reductions
- Nil Rate: Ultra-High Temperature (UHT) milk, paneer/chhena, pizza bread, khakra, plain roti/chapati, and erasers.
- Reduced to 5% (from 12%/18%): Fruit juices, butter, cheese, condensed milk, pasta, coconut water, soya milk drinks, sausages, medical grade oxygen, gauze, bandages, diagnostic kits, hair oil, soaps, shampoos, toothbrushes, toothpaste, bicycles, household kitchenware.
- White goods: ACs, TVs, dishwashers etc. shifted to 18% from 28%.
- Automobiles:
- Small cars (petrol ≤1200 cc, diesel ≤1500 cc, length ≤4 m) – 18%.
- Motorcycles < 350 cc – 18%.
- All auto parts – 18%.
- Bigger cars – 40%.
- Electric vehicles – unchanged at 5%.
- Textiles: Manmade fibre and yarn reduced to 5% (from 18%/12%).
- Fertilisers: Inputs like sulphuric acid, nitric acid, ammonia reduced to 5% from 18%.
- Services – Relief to Common Man
- Exempted: Life insurance (term, ULIP, endowment) and health insurance (individual, family floater, senior citizen).
- Reduced: Beauty and wellness services (gyms, salons, barbers, yoga centres) cut to 5% from 18%.
- Structural & Procedural Reforms
- Automated refunds & registrations for ease of doing business.
- Correction of inverted duty structure (especially in textiles & fertilisers).
- Resolution of classification disputes with simplified rate structure.
- Focus on ease of living, lower tax burden, and predictability in GST regime.
- Fiscal Impact
- Expected net revenue implication: around ₹48,000 crore (not considered revenue “loss” but an adjustment).
Legal and Procedural Basis
- Section 9 of CGST Act, 2017 empowers levy and collection of GST on goods and services.
- Section 11 of CGST Act, 2017 allows Government to exempt goods/services in public interest on GST Council’s recommendation.
- Rate rationalisation is given effect by notifications issued under Section 9(1) read with Section 11, and changes in exemption notifications (e.g., 2/2017-CT(Rate), 11/2017-CT(Rate), 12/2017-CT(Rate)) will be amended accordingly.
- The Council’s decision carries binding force under Article 279A of the Constitution, and rate notifications are issued by the Central Government following this recommendation.
✅ Conclusion:
From 22nd September 2025, GST will operate in a simplified two-slab regime (5% and 18%) with a 40% demerit rate. Essential goods, FMCG, textiles, fertilisers, and insurance have been given major relief, while luxury/sin goods are subject to higher tax. This reform reduces litigation, corrects inverted duty structures, and is expected to ease compliance significantly.