New Delhi, September 3, 2025 – Finance Minister Nirmala Sitharaman on Tuesday announced a major overhaul of India’s Goods and Services Tax (GST) structure, simplifying it to just two main slabs. Beginning September 22, 2025, only the 5% and 18% GST rates will remain in force, marking a significant step towards tax rationalisation.

The GST Council approved the reduction from the existing four-tier system of 5%, 12%, 18% and 28%. The decision is expected to lower the tax burden on consumers while streamlining compliance for businesses.

Under the new structure, everyday essentials such as soaps, shampoos, toothpaste, hair oil, bicycles, tableware, and kitchenware will now attract just 5% GST. Basic food items including UHT milk, paneer, and Indian breads have been moved to the zero-tax category, making them more affordable for households.

Goods that previously fell under the highest slab of 28%, such as small cars and household appliances, will now be taxed at 18%, bringing significant relief to middle-class consumers. In addition, individual life and health insurance policies have been made GST-exempt.

However, products considered harmful or luxury items—such as tobacco, pan masala, caffeinated beverages, and large cars—will continue to face a 40% levy or cess, at least until pending compensation dues to states are cleared.

Calling it “GST 2.0,” Sitharaman said the move will provide relief to ordinary citizens, boost domestic demand, and simplify the indirect tax system. Economists expect the reform to leave more disposable income in the hands of consumers, particularly in the run-up to the festive season.

The new rates will come into effect from September 22, coinciding with the start of Navratri, a period marked by high consumer spending.