New Delhi: India’s tax landscape is stepping into a new chapter. With the biggest structural change since the launch of the Goods and Services Tax (GST) in 2017, the GST Council has pressed reset on how the country taxes consumption.
Apart from being a rate revision, the overhaul is a full-scale reimagination of India’s indirect tax architecture. It is apparently aimed at simplifying compliance, encouraging spending and laying the groundwork for the next phase of economic expansion.
After a marathon day-long meeting, Union Finance Minister Nirmala Sitharaman announced sweeping changes that will recast the GST into a leaner and more predictable system. The move arrives at a critical time, with global headwinds tightening and domestic demand in need of a push.
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“All decisions were taken unanimously, with no disagreement with any state,” said the Finance Minister at the press briefing. She confirmed the new regime would roll out on September 22, coinciding with Navratri, marking both a symbolic and fiscal reset.
India’s complex four-tier GST system (5%, 12%, 18% and 28%) will now flatten into two primary slabs: 5% and 18%. A special 40% rate will exist outside the standard framework, applied exclusively to high-end goods and so-called “sin items” like tobacco, pan masala and sugary beverages.
The Council’s choice of Navratri for implementation signals the intent that this is not merely policy but also timing. Consumption traditionally rises during the festive season. A streamlined GST may lubricate those spending wheels.
The biggest winner in this reset is efficiency. From hair oil and cornflakes to ACs and cement, hundreds of items are being realigned under a cleaner structure. But unlike past rate cuts, this is not about what is cheaper or dearer. This is about predictability and uniformity, which are important for businesses, especially small and medium enterprises that have struggled under a fragmented system.
Goods like toilet soaps, shampoo, toothbrushes, namkeen, instant noodles and bicycles are now under the 5% slab. Consumer durables such TVs (all sizes), small cars, motorcycles below 350cc and dishwashers now attract 18%, down from 28%. Thirty-three life-saving drugs move to zero tax.
Even vision correction gear such as spectacles and goggles drops from 28% to 5%.
Agriculture and manufacturing get a lift too, with soil harvesting and fodder machines, handicrafts and biopesticides moving to the 5% category. The rate cut on cement, an important input across sectors, from 28% to 18%, is likely to have a broad ripple effect.
“GST is not a static situation. When rates come down, buoyancy goes up as people are expected to buy more when taxes are reduced,” said Sitharaman.
In a rare break from the norm, the Council also moved to exempt individual life insurance and individual health insurance premiums from GST altogether.
That includes floater plans and senior citizen health policies, a move that directly lowers the cost of protection for families.
Pan masala, cigarettes and gutka will not benefit from the new structure. In fact, the Council has imposed a more stringent mechanism: taxes on these will now be calculated on retail price, not transaction value.
The 40% rate, which sits outside the regular structure, will apply to pan masala, cigarettes and tobacco products, sugary aerated drinks, mid-to-large cars, high-end motorcycles and personal aircraft and yachts.
The finance minister clarified, “The proposed 40% levy on sin goods is not part of the regular GST structure. Only tobacco-related products will attract the 40% incidence.”
The compensation cess introduced during GST’s rollout will stay only for tobacco-related products, until the outstanding loans are repaid.
“The cess will be removed once the repayment is complete,” she said.
This signals a move towards eventually unwinding temporary financial arrangements while keeping “sin goods” heavily taxed.
There is no change in GST for electric vehicles. Small EVs, luxury EVs and electric SUVs all stay at 5%, continuing India’s push for clean mobility.
However, non-economy class air travel will now attract 18% GST, up from 12%.
This is not a populist rate tweak. It is a systemic recalibration. The GST Council is betting on a virtuous cycle: simpler taxes, better compliance, higher consumption and improved tax buoyancy.
“The GST Council is a platform where the Centre and states sit together. Gains and losses are shared collectively. If there is a loss, the Centre bears a larger burden since half its share goes back to the states,” said the finance minister.
With India’s fiscal position under pressure and global volatility rising, this reset provides a new template. It is not about cheaper toothpaste or a more affordable biscuit packet. It is about building a consistent and growth-oriented tax environment, one that reduces friction and invites trust.
Coming September 22, India not only gets a new tax rate but a new tax rhythm.
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