India's Goods and Services Tax (GST) system underwent a major overhaul on September 22, 2025, with the implementation of GST 2.0. The new framework aims to simplify the indirect tax regime, reduce compliance challenges, and make goods and services more affordable for households. A key feature of this revamp is the reduction of the multiple tax slabs to a more streamlined structure, alongside the introduction of a higher tax rate for specific goods.

Simplified Tax Structure

Under GST 2.0, the GST Council has reduced the previous four-tier tax structure of 5%, 12%, 18%, and 28% to just two primary rates: 5% and 18%.

• 5% Slab: This lower rate applies to essential goods and daily-use items such as food grains, medicines, basic dairy products, and educational materials.
• 18% Slab: Most standard goods and services, including manufacturing, transport, and consumer services, will fall under this rate.

40% "Sin Tax"

While the majority of goods and services will be taxed at either 5% or 18%, the government has introduced a special "de-merit" rate of 40% for sin and luxury goods. This higher tax, often referred to as a "sin tax," targets items considered harmful to health or society, as well as ultra-luxury products.

The following items are subject to the 40% GST rate:

• Tobacco and Related Products: This includes cigarettes, cigars, gutka, pan masala, chewing tobacco, and nicotine substitutes. These items may also attract additional cess.
• Aerated Drinks: Soft drinks and other non-alcoholic beverages, such as Coca-Cola, Pepsi, Mountain Dew, and Fanta, will witness a price hike as the GST rate has increased from 28% to 40%. This category includes aerated sugary drinks, carbonated beverages, carbonated fruit drinks, and carbonated beverages with fruit juice.
• Luxury Vehicles: High-end cars, such as SUVs with engine capacity above 1,500cc and longer than 4 meters, will fall under the 40% GST bracket, along with a 22% compensation cess. Also, motorcycles above 350cc, and luxury personal transport like yachts, private aircraft, and racing cars will be included.
• Gambling and Betting: Lottery tickets, casino services, and online gaming platforms are proposed to be taxed at 40% without additional cess in some cases.

Expected Outcomes

The government anticipates that GST 2.0 will streamline the tax system, reduce disputes, and make goods and services cheaper for households. Prime Minister Narendra Modi has hailed the reform as the start of a "Bachat Utsav" (savings festival), promising lower prices on daily items.

Other expected outcomes include:

• Simplified Compliance: The reduction in tax slabs is expected to ease compliance challenges for businesses.
• Boost to Consumption: Lower tax rates on many essential and consumer-focused items could lead to increased consumption.
• Economic Growth: The government believes that GST 2.0 will accelerate India's economic growth and promote "Aatmanirbhar Bharat" (self-reliant India).

Winners and Losers

While GST 2.0 is expected to benefit many consumers and businesses, some will be affected more than others.

• Beneficiaries: Essential goods, food items, cars, bikes, TVs, hotel stays, and services like insurance and fitness are now cheaper.
• Losers: Consumers of "sin goods" like tobacco and soft drinks will face higher taxes.

With the implementation of GST 2.0, consumers are advised to double-check the MRPs of packaged goods, as products made before September 22, 2025, may show both the old and revised prices.