India's Goods and Services Tax (GST) framework is about to undergo its most significant reform since its introduction in 2017. Following the 56th GST Council meeting in New Delhi, the government announced what is being called "Next-Gen GST" or GST 2.0.

Effective from September 22, 2025, these reforms are designed to simplify the tax structure, lower household costs, and bring uniformity across categories. Essentials such as food, medicines, and insurance are set to get cheaper, while luxury and sin goods will attract higher taxes.

The overhaul is being positioned as a step toward a simpler, fairer, and more consumer-friendly GST, aimed at boosting consumption and making compliance easier for businesses.

• Two-Slab Structure:
  

• India's GST structure has been streamlined, with the earlier four rates of 5%, 12%, 18%, and 28% consolidated into just two core slabs: 5% and 18%.
• A new 40% slab has been created specifically for luxury and sin goods such as tobacco, high-end cars, and premium beverages.
  
  

• Merging of Old Rates:
  

• The 12% and 28% slabs have been absorbed into the new system, reducing confusion for consumers and businesses alike.
  
  

• Exemption on Insurance:
  

• Under the new framework, buyers of life or health insurance including term, ULIP, endowment and family plans will not have to pay GST.

Together, these changes form the backbone of GST 2.0, making it simpler and more predictable.

Household essentials are one of the biggest beneficiaries of the reform:

• All breads and paneer: Exempt (0%)
• UHT milk: Exempt (0%)
• Plant-based milk drinks: 5% (down from 12-18%)
• Most medicines and medical equipment now fall under the 5 percent slab, while a few continue to remain tax free

This ensures that day-to-day items and critical healthcare products remain affordable, especially for middle-income households.

• Insurance Policies:

Complete exemption from GST on life and health insurance policies provides major financial relief to families.

• Beauty and Wellness Services:

Salons, gyms, yoga centres and health clubs will now be taxed at 5% without input tax credit, reduced from the earlier 18 percent.

• Consumer Appliances:

TVs, ACs, dishwashers, and similar appliances now attract 18% GST instead of 28%, potentially cutting retail prices by 8-9%.

• Batteries:

All batteries under HSN 8507 are taxed at a uniform 18%, eliminating the previous split between lithium-ion and other batteries.

This set of reforms highlights the government's focus on easing household budgets while stimulating demand for services and consumer goods.

The automobile industry has been directly impacted by GST 2.0, with significant benefits for entry-level buyers:

• Small cars: Tax reduced from 28% to 18%.
• Motorcycles up to 350cc: 18%.
• Larger cars, SUVs, MUVs, MPVs, and bikes above 350cc: 40% GST, under the luxury/sin category.

The reforms make smaller vehicles more affordable, but luxury cars and high-end bikes will see higher costs.

Rationalisation has also been applied to food and beverages:

• Carbonated fruit beverages: 40%.
• Other non-alcoholic beverages (sweetened/aerated): 40%.
• Paneer (packaged or unpackaged): Exempt.
• Cheese: 5%.

The intent here is to prevent misclassification while maintaining relief on essentials like paneer and bread.

The transportation sector has seen clarifications and restructuring:

• Road passenger transport: 5% (no ITC) or 18% (with ITC).
• Air travel: Economy at 5%, all other classes at 18%.
• Goods transport by GTA: 5% (no ITC) or 18% (with ITC).
• Multimodal transport:
  
• Road, rail, or sea: 5% (restricted ITC).
• If air is part of the journey: 18%.

This framework brings transparency and helps businesses plan logistics better.

For Consumers

Households will directly benefit from:

• Cheaper essentials such as bread, milk, paneer, and medicines.
• Zero GST on life and health insurance policies.
• Lower costs for appliances and wellness services.

For Businesses

Simplified rates reduce classification disputes and compliance burdens. MSMEs, startups, and service providers will find it easier to manage filings and costs.

For the Economy

The government expects GST 2.0 to:

• Boost consumption during the festive season.
• Lower inflationary pressure on households.
• Enhance compliance and reduce disputes.
• Offset short-term revenue losses with long-term growth.
  

• Media outlets and analysts have described the reform as a "historic Diwali gift", underlining its scale and timing.
• Industry leaders in autos, FMCG, and consumer durables have welcomed the move and pledged to pass benefits to consumers.
• Economists note that while revenues may dip initially, improved compliance and higher consumption should balance the impact.

The GST 2.0 reforms coming into force on September 22, 2025 represent a milestone in India's tax journey. With reduced rates on essentials, exemption for insurance, lower taxes on appliances and services, and a simplified rate structure, households are set to see direct benefits. At the same time, higher taxation on luxury and sin goods reflects a balanced approach that combines relief for the masses with fiscal responsibility.

For consumers, the new GST framework means lower everyday expenses and improved affordability. For businesses, it simplifies compliance and brings much-needed clarity. For the economy, it is expected to stimulate demand and support sustainable growth.

As the country transitions into this new phase, GST 2.0 stands out not just as a tax revision but as a reform aimed at making daily living more affordable while reinforcing the strength of India's financial system.