Introduction
The Goods and Services Tax (GST) Council held its 56th meeting on September 3, 2025, in New Delhi, chaired by Finance Minister Nirmala Sitharaman. This meeting is being called the biggest reform since GST was first introduced in 2017. In a historic decision, the Council decided to simplify new GST rates into just two slabs — 5% and 18%, with an additional 40% rate for sin and luxury goods. The new rates will be effective from September 22, 2025.
This decision is expected to benefit households, small businesses, and industries, while also giving a much-needed push to India’s economic growth. Let’s break down the key highlights, what gets cheaper, what stays costly, and how these changes impact you and the economy.
Highlights of the 56th GST Council Meeting
The 56th GST Council Meeting made important decisions regarding GST rates.
- Two new rates were looked at: 5% and 18%. Other items such as tobacco and cigarettes, carbonated drinks, luxury cars and yachts have a new top of the range tax rates at 40%.
- Life insurances, health insurances, daily necessities, tourist areas and most medicinces will be exempted from GST.
- Standard ratings are now lower for vehicles, everyday items and home electronics.
- A new body, called the GST Appellate Tribunal, is going to be established and operational from the end of September to address double taxation issues.
These changes mark the beginning of “GST 2.0”, which is going to make the tax system easier to comply with and favorable for economic growth.
What Becomes Cheaper?
Daily Essentials
- Staple items like bread, roti, paratha, paneer (cheese), khakhra, UHT milk are now zero-rated (no GST).
- Butter, ghee, nuts, cookies, cornflakes, namkeens, packaged biscuits, and juices will attract only 5% GST (down from 12%–18%).
Health and Insurance
- Life and health insurance premiums are now GST-free, providing huge relief to middle-class families.
- 33 life-saving drugs, including cancer and rare disease medicines, are exempted.
- Other medicines and medical equipment now fall under the 5% slab (earlier 12%).
- This means both preventive healthcare and medical treatment will be more affordable.
Automobiles and Electronics
- Two-wheelers (≤ 350cc), small cars, TVs, ACs, washing machines, dishwashers have been moved to the 18% slab (earlier 28%).
- Electric Vehicles (EVs) continue to attract just 5% GST, encouraging green mobility.
- Luxury cars and high-end motorbikes (>1200cc or >350cc), yachts, and private jets remain under the 40% bracket.
- This is a big boost for the auto industry, especially budget cars and bikes.
Agriculture and Services
- Agricultural equipment, fertilizers (like ammonia, sulphuric acid), man-made fiber and yarn are now at 5% GST.
- Beauty services, gyms, yoga centers, and salons moved to the 5% slab (earlier 18%).
- Hotels with tariff under ₹7,500 per night now fall under the 5% slab.
- This makes agriculture cheaper and service industries more attractive for consumers..
What will still be expensive?
- Tobacco products, cigarettes, pan masala, and gutkha will continue to attract 28% GST + compensation cess, until states’ revenue loans are cleared.
- Aerated and carbonated drinks (soda, colas) are shifted to the 40% slab.
- Luxury goods like high-end vehicles, yachts, and private jets will also remain expensive.
- Essentially, products considered harmful to health or luxury indulgences will remain heavily taxed.
Economic Impact of GST Reforms
Benefits for Consumers
- Basic grocery items, prescriptions, and insurance will be less expensive and allow people to save on a regular and/or essential purchase.
- This may allow some families to save current money, indicating that they were able to free up more things out of their disposable income.
Benefits for Businesses
- For companies engaged in marketing fast-moving-consumer-goods, the automotive sector, the pharmaceutical sector, and the hospitality and leisure sectors, there are new opportunities for customers, after reductions to GST.
- Multiple credits to claim have been streamlined and it is also easier to deduct for businesses.
- Small businesses may also take advantage of classified and simplified tax chains with simplified (and lower) rates to lessen the burdens.
Benefits for the Economy
- The government will be looking at lost revenues of about ₹48,000 crore, (~$5.5B), but this can easily be offset by higher spend by a large percentage of people.
- Economic growth rate expected to be at a rate of 1 to 1.2% over the next four to six quarters from additional spending resulting from changes.
- The stock markets have responded also with shares in auto stocks and FMCG and consumer goods stocks rising after the announcements on GST.
GST Tribunal and Administrative Reforms
The GST Appellate Tribunal (GSTAT) will start functioning by end-September 2025. Hearings are expected to begin in December 2025, making it easier for businesses to resolve tax disputes. This will improve tax compliance and reduce litigation delays.
Conclusion
The 56th GST Council meeting marks a turning point in India’s taxation system. By reducing slabs to just two (5% and 18%) and removing GST on essentials, the government has made GST simpler and more consumer-friendly.
For businesses, this reform opens opportunities in FMCG, healthcare, automobiles, and hospitality sectors, while consumers will benefit from lower costs on essentials and services. This “GST 2.0” is not just a tax reform, but a boost to India’s consumption-driven growth story.