India is gearing up for the most sweeping overhaul of its indirect tax system since the introduction of the Goods and Services Tax (GST) in 2017. Finance Minister Nirmala Sitharaman on Wednesday unveiled GST 2.0, which will come into effect from September 22, the first day of Navratri.

The 56th GST Council meeting approved a sharp simplification of tax slabs, abolishing the 12% and 28% categories and streamlining the system into just two standard rates 5% and 18%. In addition, a new 40% slab has been introduced for luxury and sin goods. With this, the GST regime will now be organised under four slabs: 0%, 5%, 18% and 40%.

“These reforms have been carried out in a spirit of consensus. There shall be two slabs and we are addressing the issue of compensation cess. Rate rationalisation was a unanimous agenda,” Sitharaman said after the meeting.

The changes are expected to make daily essentials, medicines, housing materials, automobiles, education products, renewable energy devices and agricultural inputs cheaper, while cigarettes, gutkha, aerated beverages, luxury cars, yachts and personal aircraft will face higher taxes.

What Gets Cheaper

Daily Essentials & Food

Hair oil, shampoos, soaps, toothbrushes and shaving cream cut from 18% to 5%.
UHT milk, paneer, parathas and other Indian breads become tax-free.
Packaged foods such as namkeen, bhujiya, sauces, pasta, cornflakes, butter and ghee now attract only 5% GST.
Almonds, cashews, pistachios, hazelnuts and dates reduced from 12% to 5%.
Refined sugar, syrups, toffees, candies, vegetable oils and spreads all moved to 5% slab.
Utensils, kitchenware, sewing machines, feeding bottles, clinical diapers and napkins for babies now at 5%.

Healthcare

33 life-saving medicines, earlier taxed at 12%, are now exempt from GST.
Spectacles and goggles for vision correction reduced from 28% to 5%.
Medical-grade oxygen, diagnostic kits, reagents, glucometers, test strips and thermometers shifted to 5%.
Individual health and life insurance premiums are now taxed at nil.

Housing & Construction

Cement, one of the most expensive construction inputs, has been slashed from 28% to 18%, lowering building costs.

Automobiles & Durables

Small cars (petrol under 1200cc, diesel under 1500cc), motorcycles below 350cc, three-wheelers, trucks, ambulances and buses move from 28% to 18%.
All auto parts have been unified under 18% slab.
Air conditioners, dishwashing machines, projectors and televisions of all sizes (earlier 28%) now fall under 18%.

Labour-Intensive Sectors

Handicrafts, marble and granite blocks, and intermediate leather goods cut to 5%.
Man-made fibre (18% → 5%), man-made yarn (12% → 5%), and natural menthol (12% → 5%) will make textiles and perfumes cheaper.

Agriculture & Education

Fertilisers cut from 12–18% to 5%.
Tractor tyres and parts reduced from 18% to 5%; tractors themselves from 12% to 5%.
Irrigation systems, bio-pesticides and agri-machinery for soil preparation, harvesting and threshing down to 5%.
Educational goods such as maps, charts, globes, pencils, sharpeners, crayons, exercise books and erasers are now tax-free.

Renewable Energy & Others

Solar and wind devices, sports goods, toys, leather products, and wood-based handicrafts all cut to 5%.

What Gets Costlier

While most consumer goods and industrial inputs will benefit from GST cuts, luxury and harmful products will be placed under the new 40% slab.

Sin goods: Cigarettes, bidis, gutkha, chewing tobacco, paan masala, zarda and raw tobacco.
Sweetened & flavoured beverages: Aerated drinks, caffeinated and fruit-based sugary beverages.
Luxury vehicles & leisure products: Motorcycles above 350cc, mid-size and large cars, yachts and personal aircraft.

In a significant compliance change, tobacco products will now be taxed on their Retail Sale Price (RSP) instead of wholesale value, ensuring higher tax collection and stricter enforcement.

What This Means?

Experts say GST 2.0 is designed to simplify, rationalise and rebalance the system, making essential goods affordable, healthcare accessible, and industries more competitive, while discouraging harmful consumption and keeping luxury indulgences expensive.

The reforms are also expected to ease litigation and improve compliance by eliminating disputes over multiple tax slabs. By streamlining the structure, the government aims to reduce the cascading effect of taxes, support industry, and give consumers visible relief.

With the rollout scheduled just ahead of the festive season, GST 2.0 is poised to have a direct impact on household budgets, industry margins and government revenues.