GST Reforms in India: New Rates, Slabs, and Key Changes in 2025

India is preparing for GST reforms in September-October 2025, with a significant reform expected to simplify the tax structure and make compliance easier. The GST changes indicate reducing GST slabs to fewer, fixing inverted tax structures, and lowering GST rates on daily essentials, packaged food, electronics and insurance. It is scheduled to launch by 22nd September 2025, as highlighted in the Prime Minister’s Independence Day address.

These changes aim to reduce  the tax burden, empower MSMEs, and boost economic growth.

Key Takeaways

• The government announced three pillars of focus for new-gen GST reforms on 15th August 2025- structural reforms, rate rationalisation and ease of doing business.
• 56th GST Council meeting held on 3rd September 2025 paved way for implementing GST 2.0 reforms. Major highlight was simplification of tax rates into two main slabs (5% & 18%) by removing 12% and 28%. Sin goods will be taxed at a new 40% GST.
• In the coming days, compliance will ease with pre-filled GST returns, faster refunds, and smoother MSME registrations.
• GST reforms aim to lower costs for essentials, boost consumption, and enhance industry competitiveness.

What are the GST Reforms?

On the 79th Independence Day, Prime Minister Shri Narendra Modi emphasised GST as an important reform. He called for new GST reforms, some of which are listed below, to help common people, farmers, the middle class, and MSMEs. The government’s proposals, which were approved by the GST Council at the 56th GST Council meeing, aim to strengthen industries, increase economic activity, and promote growth. The Centre has proposed new GST reforms to the GoMs compensation cess. 

Three Pillars of GST Reforms 2025 India:

Pillar 1: Structural Reforms:

• Inverted duty structure correction: Adjust input and output tax rates to reduce ITC accumulation and support domestic value addition.
• Resolving classification issues: Simplify rate structures, minimise disputes, simplify compliance, and ensure equity across sectors.
• Stability & predictability: Offer long-term clarity on rates and policies to build industry confidence and aid business planning.

Pillar 2: Rate Rationalisation:

• Lower taxes on essentials & aspirational goods: This will improve affordability, boost consumption, and expand access.
• Reduction of GST slabs: Move towards two main GST slabs – standard and merit, with special rates only for a few items.
• Compensation cess: Its removal creates fiscal space for rationalising and aligning tax rates sustainably.

Pillar 3: Ease of Living:

• Registration: Smooth, tech-based, and time-bound, especially for MSMEs and startups.
• Return: Pre-filled GST returns to cut manual work and mismatches.
• Refund: Quicker, automated GST refunds for exporters and inverted duty cases.

The focus is on changes to structures, adjustments in rates , and better living standards. These reforms aim to make rates simpler, reduce disputes, fix inverted duty structures, and improve the ease of doing business.

GST Rate and Slab Changes in September 2025

The new GST regime, GST 2.0, intends to simplify the tax structure by decreasing the slabs and changing rates. Significant changes are announced at the 56th GST Council meeting lowering the price of necessary goods, decreasing insurance premiums, and shift high-consumption goods into lower tax brackets. GST rate cuts on 200 items will happen from 22nd September 2025. 90% of items  in the current 28% slab are moved to the 18% slab. Almost 99% of the items in the 12% slab are moved to the 5% slab.

Key Changes – What Gets Cheaper or Costlier

What gets cheaper

• Removal of 12% slab: Items under this slab may shift to 5% or 18%.
• Health & Life Insurance: possible rationalisation to a lower rate.
• Electronics & White Goods (ACs, TVs, fridges, washing machines, cement) from 28% to 18%.
• FMCG small sachets (for instance, Rs.10 or less) may move to 5% slab.
• For Small Cars, GST on small petrol and diesel cars (engine <1200cc for petrol, <1500cc for diesel, length <4m) is to be reduced from 28% to 18%.
• Essential items: Daily-use items, including toothpaste, umbrellas, pressure cookers, sewing machines, small washing machines, and bicycles, may be move to the 5% slab.
• Sectors benefiting: It includes textiles, fertilisers, renewable energy, automotive, handicrafts, agriculture, health, and insurance.

What gets costlier

• Luxury & Sin Goods could have a new 40% GST rate on items such as tobacco, gutka, and pan masala.
• Online Gaming may be reclassified as a demerit good. It is expected to draw the highest tax rate of 40%.

Timeline of GST Reforms

On August 15th, 2025, Prime Minister Modi announced upcoming GST reforms. Modi promised reduced rates before Diwali of 2025. The government, through the GST Council, moved to a simplified tax framework of 5% and 18% with the removal of the current 12% and 28% tax rates from 22nd September 2025, after CBIC notifications come out. Except GST on tobacco and its products, GST rate changes on the rest will be implemented from 22nd September 2025.

Impact of GST Reforms in 2025

The proposed next-gen GST reforms do more than just cut rates. They are expected to create a significant economic impact. By fixing inverted tax structures, these reforms will free up working capital, improve manufacturing competitiveness, and support Atmanirbhar Bharat goals. For MSMEs, simpler compliance and lower rates will cut costs, encourage the formalisation of the unorganised sector, and expand the tax base. 

On the consumer side, cheaper goods will increase purchasing power. The expected reduction in prices for white goods should boost demand in the consumer durables sector. The elimination of the compensation cess by March 2026 will help to facilitate both these reforms, and make GST an instrument of not just taxation but also economic growth & policy effectiveness. 

The GST system in India is set for huge change in the future. The government wants to make it all simpler, more predictable, and more compliant. The next-generation GST reforms are likely to address structural issues, lower tax rates on essential goods, and support MSMEs. By Diwali 2025, as the implications of the changes to the GST law begin to take effect, both businesses and consumers can expect a tax system that is more efficient, transparent, and growth-focused.