The Indian government has taken a major step to lighten the tax load for everyday people and bring fresh momentum into the economy. In a landmark decision, the GST Council—chaired by the Nirmala Sitharaman—voted to cut the goods and services tax (GST) on several categories of items that millions of households use regularly. These changes, announced this week in New Delhi, will take effect from the 22nd of this month, ushering in what the government describes as a “next-generation” tax regime designed to simplify, stabilise and benefit the common man.
Why this matters
For years, the GST system in India operated with multiple tax slabs—5 %, 12 %, 18 % and 28 %—which created classification confusion, compliance burdens for businesses, and ultimately, higher costs for consumers.
With this round of reform, the Council has effectively moved to a structure where the major slabs are 5 % (the “merit” or essential goods rate) and 18 % (standard goods), along with a special 40 % slab reserved for luxury or sin goods.
In practice this means: many items used daily by millions will now attract a much lower GST, some even zero. That means less tax in your bill, more take-home value in your wallet. It’s a typical “tax-cut meets relief” move. In the government’s words, this is about “ease of living” and boosting consumption and investment.
What gets cheaper?
Here’s how the major buckets shake out—these are the items where you should start feeling relief.
Household-essentials & FMCG
Daily use items like hair oil, soap bars, shampoos, toothbrushes, toothpaste, kitchenware (tableware, small household articles) are now moving from the higher slabs of 12 % or 18 % down to 5 %.
Food-items heavily used by households in India—packaged namkeen, bhujia, sauces, pasta, instant noodles, chocolates, coffee, cornflakes, butter, ghee—also go from 12 % or 18 % to 5 %.
Importantly: ultra-high temperature (UHT) milk, pre-packaged labelled chena or paneer are now zero per cent GST. Same for all kinds of Indian breads — chapati, roti, paratha, parotta—now nil GST.
Automotive, consumer durables, electronics
Items that fall into the aspirational yet widely purchased category: air-conditioning machines, dish‐washing machines, all types of televisions (previously tiered by size) will now face 18 % GST (down from 28 %).
Small cars and motorcycles up to 350 cc also see GST cut from 28 % to 18 %. Buses, trucks, ambulances get the same 18 % rate now (down from 28 %). Uniform rate of 18 % on all auto parts. Three-wheelers too.
Construction input side: cement (which had been taxed higher) is reduced (example: 28 % → 18 %). This feeds into housing and infrastructure cost relief.
Agriculture, health, insurance
Agriculture gets a boost: machinery and equipment for soil preparation, cultivation, harvesting, threshing—formerly taxed at 12 %—now 5 %. Labour-intensive goods (handicrafts, marble/granite blocks, intermediate leather goods) also move to 5 %.
Health-related items: 33 life-saving drugs are now at zero per cent GST (down from 12 %). Additionally, 3 specific drugs for cancer, rare diseases and other severe chronic conditions move from 5 % to nil. Other drugs and medicines move from 12 % to 5 %. Medical devices and apparatus (surgical, dental, veterinary) from 18 % to 5 %.
Insurance: The government has exempted GST on all individual life insurance policies (term life, ULIP, endowment) and re-insurance, as well as all individual health insurance policies (family floater plans, senior citizens) and re-insurance. This is meant to reduce the cost of insurance and help increase coverage.
How will the change work?
These reforms were approved in the 56th GST Council meeting (held 3–4 September 2025 in New Delhi) under the chairmanship of Finance Minister Nirmala Sitharaman, with State Finance Ministers and other stakeholders participating.
The effective date for the new rates is 22nd September 2025, aligning with the festival season and giving businesses time to adjust systems, pricing, supply chains.
What’s the bigger picture?
From an economic angle:
The tax cuts are expected to boost consumption, especially among middle-class households whose out-of-pocket spending gets lighter because of lower GST on everyday items. Industry experts estimate a meaningful uplift in demand.
For businesses: simpler slabs = fewer classification disputes, better predictability, easier compliance. The transition to two main slabs (5 % and 18 %) simplifies the system.
For farmers and the agriculture value chain: lower tax on equipment and intermediates reduces cost of production, helps competitiveness.
For the housing and infrastructure sector: lower input costs (cement, construction goods) should aid pricing and project viability.
Politically and socially: This move is being framed as relief to the common man, ahead of festivals, and signals a more “inclusive” tax policy—tax cuts not just for big corporations but for households and everyday lives.
But what about the caveats?
While many items are cheaper, a full list of every item and every service isn’t simplified overnight. Businesses will need to update their pricing, IT systems, return processes. The devil is in the implementation.
For the higher rate “luxury/sin” slab of 40 %, some items remain at elevated tax rates; so it isn’t universal relief, just targeted.
Because of the change in slabs and removal of some compensation cess components, some sectors may face transitional issues with input tax credits (ITC) or pricing adjustments. The government has flagged this and issued FAQs.
So what do you, the consumer or business, need to know?
If you’re a household:
Items you buy regularly—soaps, shampoos, toothpaste, bisquick snacks, instant noodles, packaged foods—should cost a bit less (tax-component cheaper).
Large durable goods (TVs, ACs, two-wheelers under 350 cc) will also be cheaper in terms of tax, making your upgrade decisions slightly easier.
Insurance premiums for individual life and health policies will no longer include GST, so your policy cost should be lower (or at least, taxes won’t add extra).
If you’re a business / trader:
Be ready: update price lists, invoices, taxes in your accounting and billing systems by 22 September.
Re-classify goods and services: many earlier 12 % or 18 % items are now 5 %. Some goods were at 28 %, now 18 %. Make sure you map HS codes correctly.
For sectors like automobiles, consumer electronics, construction inputs, agriculture equipment: the tax transition might affect margins, and you’d want to pass benefit or pricing changes strategically.
For sectors still dealing with pan masala, cigarettes, etc: there’s no change (yet) on higher tax rates until further notice.
Check input tax credit implications: when rates change, especially to nil, the ITC rules may need closer attention. The government has published FAQs for these.
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