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

Q: What are the major GST reforms in India in 2025?

India’s GST reforms in 2025 focus on simplifying GST slabs. 99% of items in the 12% slab moved to 5%, and 90% of those in the 28% slab reduced to 18%. This reform has greatly reduced the burden of taxation and make goods more reasonable for consumers.

Q: When will the GST reforms in India be implemented?

The GST reforms in India are have been rolled out since 22nd September 2025 through central tax notifications, as stated by Prime Minister Narendra Modi.

Q: How many GST tax slabs have remained after Next Gen reforms?

The Centre’s GST reform now have a simplified two-slab structure of 5% and 18%, and a special 40% slab for sin and luxury goods. With this reform essentials are cheaper, while sin and luxury goods charge the higher taxes.

Q: What are the new GST rates under Next Gen reform?

India has implemented a simplified rate structure of 5% for essentials and daily-use goods, 18% for most other goods and services, removing the 28% slab altogether, and adding a new 40% slab exclusively for sin and luxurious goods.

Q: What items are cheaper under the new GST reforms in 2025?

Goods that usually got classified under the 12% or 5% slab are now reclassified as 5% or nil respectively, including daily essentials, packaged food, clothing, shoes, bicycles, medicines, and medical equipment. GST on health and life insurance premiums are now exempted from GST, which has potentially reduced household allocation on these products.

By Annapoorna

Updated on: Oct 16th, 2025

3 min read

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 was launched on 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.
These changes are now live with notifications by the CBIC passed on 17th September 2025.
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, simplifies the tax structure by decreasing the slabs and changing rates. Significant changes have been implemented after 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 happened 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 shifted to 5% or 18%.
Health & Life Insurance: Exemption from GST
Electronics & White Goods (ACs, TVs, fridges, washing machines, cement) from 28% to 18%.
FMCG small sachets (for instance, Rs.10 or less) moved to 5% slab.
For Small Cars, GST on small petrol and diesel cars (engine <1200cc for petrol, <1500cc for diesel, length <4m) reduced from 28% to 18%.
Essential items: Daily-use items, including toothpaste, umbrellas, pressure cookers, sewing machines, small washing machines, and bicycles, moved to the 5% slab.
Sectors benefiting: It includes textiles, fertilisers, renewable energy, automotive, handicrafts, agriculture, health, and insurance.

What gets costlier

Luxury & Sin Goods now have a new 40% GST rate on items such as tobacco, gutka, and pan masala.
Online Gaming were reclassified as a demerit good. It has drawn 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 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 free up working capital, improve manufacturing competitiveness, and support Atmanirbhar Bharat goals. For MSMEs, simpler compliance and lower rates can cut costs, encourage the formalisation of the unorganised sector, and expand the tax base.

On the consumer side, cheaper goods has increased purchasing power. The 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 address structural issues, lower tax rates on essential goods, and support MSMEs. Both businesses and consumers expect a tax system that is more efficient, transparent, and growth-focused.

Frequently Asked Questions

What are the major GST reforms in India in 2025?

India’s GST reforms in 2025 focus on simplifying GST slabs. 99% of items in the 12% slab moved to 5%, and 90% of those in the 28% slab reduced to 18%. This reform has greatly reduced the burden of taxation and make goods more reasonable for consumers.

When will the GST reforms in India be implemented?

The GST reforms in India are have been rolled out since 22nd September 2025 through central tax notifications, as stated by Prime Minister Narendra Modi.

How many GST tax slabs have remained after Next Gen reforms?

The Centre’s GST reform now have a simplified two-slab structure of 5% and 18%, and a special 40% slab for sin and luxury goods. With this reform essentials are cheaper, while sin and luxury goods charge the higher taxes.

What are the new GST rates under Next Gen reform?

India has implemented a simplified rate structure of 5% for essentials and daily-use goods, 18% for most other goods and services, removing the 28% slab altogether, and adding a new 40% slab exclusively for sin and luxurious goods.

What items are cheaper under the new GST reforms in 2025?

Goods that usually got classified under the 12% or 5% slab are now reclassified as 5% or nil respectively, including daily essentials, packaged food, clothing, shoes, bicycles, medicines, and medical equipment. GST on health and life insurance premiums are now exempted from GST, which has potentially reduced household allocation on these products.

About the Author

Annapoorna

Assistant Manager - Content

I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more

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