GST 2.0: Only 2 slabs of 5% and 18% from Sept 22; 40% for sin goods; focus on common man, says FM

The 56th GST Council meeting, led by Finance Minister Nirmala Sitharaman, on Wednesday (September 3) approved a two-tier structure with rates of 5% and 18%, and a special tax of 40% on sin goods. The decision was unanimous, said Union Finance Minister Nirmala Sitharaman, and will come into effect from September 22, 2025. The GST overhaul replaces the existing four slabs of 5%, 12%, 18%, and 28% with a simplified two-rate system. In the new regime, essential or “merit" goods will be taxed at 5%, while most goods and services will fall under the 18% standard rate.

“The Prime Minister actually set the tone for the next generation of reforms on August 15. These reforms are not just a rationalisation of rates, but also ease of business and living. There shall be only two slabs," Union Finance Minister Nirmala Sitharaman said.

“We have reduced the slabs to just two. We are simplifying registration, return filing, and refunds. We are making reforms with a focus on the common man. We have ensured that daily-use items for the common man get cheaper.”
“We are extending strong support to labour-intensive industries. We are ensuring farmers and agriculture benefit from today’s decisions. We are prioritising health as a key driver of the economy. We are carrying out reforms to ease living and improve transparency. Thanks to all state FMs for being on board with today’s decision. PM has been pushing for giving relief to the people of India," she further added.

Bihar Deputy Chief Minister Samrat Choudhary said the move was taken with the consensus of all states, calling it a collective decision on rate rationalisation. West Bengal Finance Minister Chandrima Bhattacharya noted that the restructuring would result in an estimated revenue loss of ₹47,700 crore.

Prime Minister Narendra Modi reacts

Here are the new GST reductions

Now at 5%: Hair oil, toilet soaps, soap bars, shampoos, toothbrushes, toothpaste, bicycles, tableware, kitchenware, and other household items.

Now at 0% (from 5%): Ultra-high temperature (UHT) milk, chena, paneer, and all varieties of Indian breads, including roti and paratha.

Reduced to 5% (from 12% or 18%): Packaged food items such as namkeen, bhujia, sauces, pasta, instant noodles, chocolates, coffee, preserved meats, cornflakes, butter, and ghee.

Reduced to 18% (from 28%): Air conditioners, television sets above 32 inches (all TVs are now taxed at 18%), dishwashers, small cars, and motorcycles with engine capacity of 350 cc or below.