The Goods and Services Taxes (GST) system is experiencing a revolution in India in September 2025. The government has simplified the previous multi-slab framework into a three-way rate structure that is designed to enhance compliance, lower costs for consumers and increase domestic demand.
This will be known as the biggest tax reform since GST was first introduced in 2017 and will come into force from September 22, 2025. Let us outline the old vs new GST rates, the sectors impacted, and how this will affect businesses and consumers.
GST Rate Slabs – Old Structure vs New Structure
Old GST Rate Slabs: 5% 12% 18% 28% (+ cess on luxury/sin goods)
New GST Rate Slabs 2025 (effective September 22, 2025) –
- 5% – essentials and merit goods
- 18% – standard for most goods and services
- 40% – de-merit for luxury and sin goods
The 12% and 28% slabs have been eliminated and it will be much simpler.
Old vs New GST Rates (September 2025)
Here’s a detailed comparison of the major goods and services:
| Category | Old GST Rate | New GST Rate (Sept 22, 2025) |
| Essentials (soaps, toothpaste, snacks) | 12% / 18% | 5% |
| Staple foods (roti, paneer, UHT milk) | 5% / 12% / 18% | 0% (Nil) |
| Processed foods (namkeens, chocolates) | 12% / 18% | 5% |
| Healthcare & Life Insurance | 12% / 18% | 0% / 5% |
| Electronics (TVs, ACs, refrigerators) | 28% | 18% |
| Small cars & two-wheelers (<350cc) | 28% | 18% |
| Budget hotels & eating out | 12% / 18% | 5% / 12% |
| Luxury & sin goods (cigarettes, pan masala) | 28% + cess | 40% |
Noteworthy Features of the New GST Regime
- Reduced Duty on Essentials
All daily essentials such as soaps, toothpaste, snacks, paneer, and UHT milk, entered the 5% category or are totally exempted from the tax. This will provide some relief for the average consumer.
- Increased Benefit for Healthcare
Medicines and health insurance premiums have been reduced to either 0% or 5%, from the previous level of 12–18%. Healthcare and protection policies are now made affordable.
- Electronics and Automobiles are Cheaper
Big ticket consumer durables, such as TVs, fridges and air cons have moved from 28% → 18%, while two-wheelers and small car have also dropped in value with that change.
- Hospitality More Affordable
Budget hotels (rooms < ₹7,500) and economy air travel were now captured under 5% GST, implying we will see demand rise in travel and tourism.
- Elevated Taxes on Luxury & Sin Goods
Cigarettes, pan masala and others have seen restrictions of up to 40% tax rates, in compromise of higher revenues and preventing abuse.
Implications of GST Changes
Consumer Impact
- Lower-priced food, healthcare, electronics and travel.
- Household savings may increase due to a lower tax burden.
Business Impact
- Compliance simplified with only three slabs.
- Adjusted MRPs on unsold goods allowed until December 2025.
- Manufacturers and retailers will need to adapt their billing and pricing systems.
Economic Impact
- Stimulus for domestic demand in the FMCG, auto, housing and tourism sectors.
- Support for traditional crafts (e.g. carpets and textiles) via lower rates.
- The luxury market pays more consumer tax, thus balancing revenue with social opportunity costs.
Important Compliance Issues
- New rates will take effect from September 22 2025.
- For invoices produced prior to September 22, these would be taxed on the old rates; however, invoices produced after Sept 22 would be taxed under the new structure.
- Each business will need to update its accounting systems and, most importantly, educate its customers.
Conclusion
The new GST rate structure of September 2025 is a major advancement in simplifying taxes. It benefits consumers and businesses by reducing prices on essentials and health care, shows savings on big-ticket items such as electronics and vehicles, and drastically reduces compliance requirements for businesses.
At the same time, the government raised taxes on luxury items and sin goods to ensure equilibrated revenues. This reformulated rate structure should invigorate domestic consumption, strengthen local industries, and ease compliance requirements.
For both businesses and individuals, what you need to do is keep current, update MRPs, and update your systems to the new framework.
Related Services
References
https://cbic-gst.gov.in/
https://gstcouncil.gov.in/
https://www.gst.gov.in/
