The Goods and Services Tax (GST) Council's recent meeting has resulted in significant changes to the GST rates, impacting what consumers will buy, when they can buy it at new rates, and how much they will pay. These changes, hailed as "Next-Gen GST Reform" and a "Diwali gift" to the nation, are set to take effect from September 22, 2025, except for tobacco-related products.

Key Highlights of the New GST Rates:

1. Two-Tier Structure: The GST Council has approved a broad two-slab structure of 5% and 18%. This replaces the previous multiple slab system (5%, 12%, 18%, and 28%).
2. Demerit Rate: A special demerit rate of 40% will be levied on super luxury goods, sin goods, and demerit goods such as pan masala, tobacco, large cars, yachts, and helicopters.
3. Effective Date: The revised rates on most goods and services will apply from September 22, 2025. However, the existing rates of GST and compensation cess will continue to apply to cigarettes, chewing tobacco products, unmanufactured tobacco, and beedi. New rates on these items will be implemented later, after all loan and interest liabilities on account of compensation cess are discharged.
4. Boost to Consumption: The rate cuts are expected to boost domestic spending and cushion the economic impact of US tariffs. The government aims to stimulate demand by lowering the tax burden on goods, which in turn fuels production and economic activity.
5. Impact on Prices: The GST rate changes are expected to reduce the retail prices of a wide array of goods. For example, air conditioners may become cheaper by around ₹1,500 to ₹2,500 per unit.

What Gets Cheaper?

• Common Use Items: GST tax rates on common use items ranging from hair oil to corn flakes, TVs, and personal health and life insurance policies have been slashed. Almost all personal-use items will see rate cuts.
• Essential Goods: Daily consumer products including hair oil, shampoos, and toothbrushes move to the 5% category.
• White Goods: GST has been reduced for white goods such as air conditioners, television sets, and dishwashing machines to 18% from 28%.
• Small Cars: Small cars with engine capacity not exceeding 1200 cc (petrol) and 1500 cc (diesel) and with length not over 4 meters will now be in the 18% slab.
• Motorcycles: Motorcycles up to 350 cc will be taxed at a lower GST of 18% as against 28%.
• Medical Items: Medical items including medical grade oxygen, gauze, bandages, and diagnostic kits will attract 5% GST (from 12% earlier). Individual life and health insurance policies will be fully exempt from GST.
• Food Items: Common food items like paneer, ghee and namkeen will now attract 5% or zero tax. Ultra-high temperature milk, chhena or paneer, pizza bread and khakra, plain chapati or roti will attract nil GST rate.

What Remains the Same or Gets More Expensive?

• Tobacco Products: The existing rates of GST and compensation cess will continue to apply to cigarettes, chewing tobacco products, unmanufactured tobacco, and beedi until a later date.
• Larger Vehicles: Bigger cars will be taxed at 40%.
• Motorcycles above 350cc: Motorcycles above 350 cc will attract a 40% levy.

Impact on Consumers and Businesses:

• Consumers: Consumers can expect lower prices on various goods, leading to increased affordability and potentially higher demand.
• Businesses: A streamlined GST framework can reduce compliance burdens and boost demand. For sectors like cement and FMCG, the changes can correct inverted duty structures.
• Economy: The changes are anticipated to stimulate consumption-led growth, ease inflationary pressures, and formalize the Indian economy.

Additional Points:

• The GST Council's decision also includes a shift of several items to the 0% or nil tax bracket.
• The move also fulfills Prime Minister Narendra Modi's Independence Day announcement, where he had promised a "Diwali gift" through GST reforms.

In conclusion, the new GST rates, effective from September 22, 2025, aim to simplify the tax structure, reduce the tax burden on common people, and boost economic activity. While most items will see a reduction in GST rates, some goods like tobacco products and larger vehicles will continue to attract higher taxes.