GST 2.0 Reform: Key Changes & Market Impact

In the GST Council meeting held on 3 September 2025, the government made a historic change in the GST tax structure. The earlier four slabs (5%, 12%, 18%, 28%) have been reduced to just two main slabs 5% and 18%, while a new high slab of 40% has been fixed for luxury and “sin” goods. 

These changes will come into effect from 22 September 2025, which will make everyday items (such as soap, cheese, life and health insurance, etc.) more affordable, while luxury and tobacco items will become expensive.

Overview of the GST 2.0 Reform

The Government of India has taken a big step towards making the tax structure simpler and consumer-friendly under the GST 2.0 reform or Next-Generation GST reforms. These changes will not only make everyday necessities cheaper, but will also give new impetus to the insurance and consumer durable sector. Let us see in detail what changes have been made.

1. Slab structure simplified

Till now there were four different slabs in the GST framework, which made the calculation of tax and consumer prices complicated. After the reform, the tax system has now become simpler.

• The earlier four rates (5%, 12%, 18%, 28%) have been reduced to just two major slabs (5% and 18%).
• Also, a new high slab of 0% on essential goods and 40% on luxury and sin goods will be applicable.

2. Everyday essentials

This change will primarily benefit ordinary consumers, making essential items more affordable and reducing the impact of inflation on daily expenses.

• Milk, curd, medicines and other essential items will now attract 0% GST.
• This will have a direct impact on the monthly expenses of every family.

3. FMCG products

Fast moving consumer goods (FMCG) will now be more easily accessible to every household. Tax cuts on these are also an opportunity for companies to increase demand.

• Items like toothpaste, soap, shampoo, chocolate and personal care, which earlier used to come under 18%, will now be available at 5% GST.
• This will have a direct impact on the pockets of consumers and will increase sales.

4. Automobile and durables

The auto and home appliances sector has also got a big relief. Due to the reduction in tax, their prices will come down and revenues will increase.

• Products like small cars, air conditioners, TVs and cement will now come under 18% GST instead of 28%.
• There is a possibility of an increase in their sales during the festive season.

5. Insurance services

The exemption given to the insurance sector in the reforms is a relief especially for the middle class. This will reduce the cost of premium and increase the trend of buying insurance policies.

• Life and health insurance services have now been completely exempted from GST.
• This will directly benefit both consumers and insurance companies.

6. Luxury and sin goods

The government has decided to provide relief on essential commodities while increasing taxes on luxury and unhealthy items. 

• Tobacco, cigarettes, aerated drinks, high-end cars and premium events like IPL will be subject to 40% GST.
• This will increase the prices of these products and services further.

7. Agriculture and rural economy

Reducing tax rates on agricultural inputs such as seeds, fertilizers and agricultural equipment will reduce the cost of farmers. Also, rural consumption is expected to increase as everyday products used in rural areas will become cheaper. This change is a positive sign for the agricultural industry and agri-based companies.

8. Date of implementation

These changes are not limited to the announcement only, but are going to be implemented very soon.

• The new tax rates will be applicable across the country from 22 September 2025.
• The government aims to give immediate relief to consumers and industries by implementing it before a big festival like Navratri.

Read Also: GST on Gold Purchase in India

GST 2.0: Before vs After Comparison

Category	Earlier GST Rate	New GST Rate (from 22 Sept 2025)	Impact
Everyday items (Chapati, medicines, Chocolates)	5% / 12%	0% – 5%	Affordable for consumers
FMCG (Soap, Shampoo, Toothpaste, Chocolate)	18%	5%	Lower prices, higher demand
Small Cars, TV, AC, Cement	28%	18%	Price will decrease, sales may increase during festive season
Life and health insurance	18%	0%	Affordable insurance policy
Luxury Cars, Tobacco, Cigarettes, Aerated Drinks	28%	40%	will become expensive, demand will decrease
Agricultural inputs (seeds, fertilizers, equipment)	5% / 12%	0% – 5%	Farmers’ costs will decrease, rural consumption will increase

Economic Impact of GST Changes

• Increase in consumption and momentum in the festive season : Consumer spending is likely to increase due to the reduction in taxes on everyday goods, FMCG and small vehicles. Experts believe that the demand graph will go up in the coming festive season, which will accelerate both the sales and production of companies.
• Reduction in inflation : GST 2.0 will have a direct impact on inflation. Analysts estimate that this could reduce inflation by about 20 to 30 basis points, which is a relief for both consumers and the market.
• Balance of government revenue : Even though the tax cut will cause a revenue loss of about ₹48,000 crore to the government, the ministry hopes that this loss will be balanced by increased consumption and better tax collection.
• Relief to business and industry : The simplification of the GST structure will make compliance easier for the industry and small and medium businesses (SMEs). This will improve their working capital situation and also increase transparency in business.
• Impact on the financial position of the states : The new GST structure may put pressure on the revenue share of the states. However, the Center has assured that a separate arrangement will be considered to compensate the state governments. This issue may impact policy making in the coming months.

Read Also: Types Of Taxes In India: Direct Tax And Indirect Tax

Conclusion

This GST 2.0 reform is a historic step in India’s tax system. By simplifying the slabs, the government has created a framework that can boost consumption and support economic growth. Everyday essentials will become cheaper, while luxury and tobacco products will become more expensive. From an investor’s perspective, it is time to re-evaluate strategies and focus on sectors where consumption and growth are most likely.