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New GST Rate in India 2025
The Indian government has initiated a significant overhaul of the Goods and Services Tax (GST) system, moving toward a more streamlined and simplified structure. Effective September 22, 2025, the new GST regime, often referred to as “GST 2.0,” replaces the previous four-slab system with a two-rate structure, complemented by a special de-merit rate for specific goods. This reform, announced following the 56th GST Council meeting, aims to reduce the tax burden on everyday items, boost economic activity, and enhance compliance for businesses.
New GST Rate in India 2025: Key Changes and New Tax Slabs
The most notable change is the elimination of the 12% and 28% tax slabs. The new framework introduces a rationalized three-tiered structure:
- 5% (Merit Rate): This rate is for essential goods and services. A wide range of daily-use items previously taxed at 12% or 18% have been moved to this lower slab.
- 18% (Standard Rate): This is the new standard rate for most goods and services. Many items formerly in the 28% slab, as well as some from the 12% slab, have been moved here.
- 40% (De-merit Rate): This new, higher rate is specifically for luxury and “sin” goods, including high-end cars, yachts, and certain tobacco and carbonated products.
Items with Reduced GST Rates (Old vs. New)
Category | Item | Old GST Rate | New GST Rate |
Household & Personal Care | Soaps, shampoos, hair oil, toothpaste | 18% | 5% |
Utensils, bicycles, kitchenware | 12% or 18% | 5% | |
Diagnostic kits, reagents, surgical instruments | 12% or 18% | 5% | |
Medicines, life-saving drugs | 12% | 5% or Nil | |
Apparel and footwear (up to Rs. 2,500) | 12% | 5% | |
Individual life and health insurance premiums | 18% | Exempt (0%) | |
Packaged Foods & Groceries | Butter, ghee, cheese, dairy spreads | 12% | 5% |
Packaged foods (e.g., namkeen, biscuits, pasta, cornflakes, cereals) | 12% or 18% | 5% | |
Dry fruits and nuts | 12% | 5% | |
Jams, sauces, pickles, soups | 12% or 18% | 5% | |
Ice cream and edible ice | 18% | 5% | |
Indian breads (roti, paratha, parotta) | 18% | Exempt (0%) | |
Consumer Durables | Air conditioners, televisions (over 32 inches), refrigerators, washing machines | 28% | 18% |
Cement | 28% | 18% | |
Automobiles & Transport | Motorcycles (up to 350cc) | 28% | 18% |
Small cars (petrol engines under 1200cc, diesel under 1500cc) | 28% (+ cess) | 18% | |
Services | Hotel stays with tariff up to Rs. 7,500 per day | 12% | 5% |
Health clubs, salons, barbers, yoga classes | 18% | 5% | |
Construction & Building Materials | Marble, granite, sand-lime bricks | 12% | 5% |
Construction bricks, bamboo flooring | 12% | 5% |
Items with Reduced to Nil (0%) GST Rate
Category | Item | Old GST Rate | New GST Rate |
Food Items | Pre-packaged & labelled paneer | 5% | Nil (0%) |
Khakhra, chapati or roti | 5% | Nil (0%) | |
Paratha and Parotta | 18% | Nil (0%) | |
Pizza bread | 5% | Nil (0%) | |
Ultra-High Temperature (UHT) milk | 5% | Nil (0%) | |
Education & Stationery | Erasers, pencils, sharpeners, crayons, chalk | 5% or 12% | Nil (0%) |
Exercise books, graph books, notebooks | 12% | Nil (0%) | |
Dry fruits and nuts | 12% | Nil (0%) | |
Printed maps, atlases, globes, charts | 12% | Nil (0%) | |
Healthcare | Select life-saving drugs for cancer and rare diseases | 5% or 12% | Nil (0%) |
All individual health and life insurance premiums | 18% | Nil (0%) | |
Other | Works of art and antiques | 18% | Nil (0%) |
Items with an Increased GST Rate
Category | Item | Old GST Rate | New GST Rate |
Luxury & “Sin” Goods | High-end cars, yachts | 28% + applicable cess (often totaling over 40%) | 40% |
Aerated waters and sugary beverages | 28% + 12% cess (totaling 40%) | 40% | |
Online gaming, casinos, betting | 28% | 40% | |
High-end motorcycles (over 350cc) | 28% + applicable cess | 40% |
Note
Note: The old tax rates on tobacco and related products (e.g., cigarettes, pan masala) will continue with the existing cess until the government's compensation cess liabilities are cleared.
Impact on Consumers and Businesses
The new GST rates are designed to provide direct relief to households and simplify the tax landscape for businesses.
- Daily Essentials Get Cheaper: Many items that are part of a common household budget are now taxed at a reduced rate. This includes products like soaps, shampoos, toothpaste, packaged foods (e.g., butter, ghee, namkeen), and kitchenware. Services like salon and gym memberships and hotel stays with tariffs up to Rs. 7,500 per day also now attract a lower GST of 5%.
- Major Purchases Become More Affordable: High-value goods like air conditioners, televisions, refrigerators, and washing machines have been shifted from the 28% slab to the 18% slab. This makes aspirational purchases more accessible for middle-class families.
- Boost to Key Sectors: The reforms offer significant relief to several industries. The GST on small cars and two-wheelers (up to 350cc) has been reduced to 18%, which is expected to boost the automotive sector. Similarly, lower GST rates on construction materials like cement and marble, and on agricultural equipment and medicines, will benefit the housing, farming, and healthcare sectors.
- Simplification and Compliance: The new system is expected to simplify compliance for businesses by reducing the number of tax slabs and clarifying HSN codes. It also aims to correct the “inverted duty structure” in certain sectors, where the tax on raw materials was higher than that on the final product.
What Remains Unchanged or Becomes More Expensive?
While the overall trend is a reduction in taxes, some items and services will see a higher tax burden or remain at existing rates.
- Luxury and Sin Goods: Items considered luxurious or harmful, such as high-end vehicles, online gaming, and betting, now fall under the new 40% de-merit rate.
- GST Exemption: Individual life and health insurance premiums are now completely exempt from GST, a move aimed at making financial protection more affordable for families.
- Tobacco Products: The existing tax structure (28% GST plus cess) on tobacco and its products will remain in place until the government’s loan and interest liabilities under the compensation cess account are fully discharged.
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