GST Council Approves Simplified Two-Tier Structure: 5% and 18% Rates from September 22
The Goods and Services Tax (GST) Council, chaired by Union Finance Minister Nirmala Sitharaman, on Wednesday approved a landmark restructuring of India’s indirect tax regime. Effective September 22, 2025, the GST will shift to a simplified two-slab structure of 5% and 18%, while a special 40% levy on sin goods will continue. The reform, which has been unanimously backed by all states, aims to ease compliance, lower costs for common goods, and simplify taxation for businesses and consumers alike.
A Big Move Towards Simplification
Currently, the GST structure is split across multiple slabs—5%, 12%, 18% and 28%. The new reform merges the 12% and 28% slabs, pruning the system down to just two core rates. Finance Minister Sitharaman, speaking at a late-night press briefing, said the decision was taken “in the interest of the common man,” adding that the reform would also resolve long-standing classification-related issues that had created confusion for tax filers and businesses.
“This is not just a rate rationalisation exercise,” Sitharaman stressed, “but a comprehensive reform package, covering compliance and process simplification.”
The changes are expected to result in an estimated revenue loss of ₹48,000 crore, but the government hopes this will be offset by stronger consumption demand, especially during the upcoming festive season.
Key Items That Will Get Cheaper
The restructuring has been designed with both households and industries in mind. Among the biggest beneficiaries is the infrastructure sector, as cement—previously taxed at 28%—will now attract 18% GST. Economists believe this will significantly reduce construction costs and boost infrastructure activity.
Consumers, too, will see relief across categories:
- Fast Moving Consumer Goods (FMCG): Food items, packaged goods, and personal care products will now come under lower GST rates.
- White Goods & Automobiles: Small cars, bikes, and appliances will benefit from rationalised rates, improving affordability.
- Insurance Premiums: Life and health insurance policies bought by individuals will attract a lower rate, encouraging wider coverage.
- Hospitality: Hotel tariffs below ₹7,500 will be taxed at 5%, making travel and tourism more affordable.
On the other hand, some goods such as coal, premium apparel, and online gaming have been moved into higher slabs to partly compensate for the revenue shortfall.
Sin Goods and Cess
For sin goods like tobacco and aerated drinks, the overall tax incidence will remain at current levels. While the GST on these products will technically be capped at 40%, the existing 28% GST plus compensation cess will continue until the cess is phased out by October–November 2025. A final mechanism to maintain revenue neutrality on these products will be announced later.
Positive Signals for Economy and MSMEs
Most economists have welcomed the move, calling it a pro-growth, consumption-driven reform. By reducing rates on essentials and easing compliance, the government is expected to give a much-needed push to consumption, which has been subdued for years.
The reform is also expected to ease the burden on MSMEs, who often struggle with complex tax filings. The Council has approved additional compliance relaxations and simplified return procedures, which should improve the ease of doing business.
“The GST rate changes look favourable, especially with the across-the-board decline in the cost of daily-use items,” said one market economist. “This should support demand, improve business sentiment, and accelerate India’s growth momentum.”
A Reform with Festive Timing
Coming just weeks before the festive season, the new GST structure is likely to improve purchasing power and stimulate retail sales. The government is hopeful that the twin effect of cheaper goods and easier compliance will not only strengthen businesses but also reinforce consumer confidence.
As India enters the next phase of GST reforms, the simplified structure marks an important milestone in making the tax regime more predictable, transparent, and consumer-friendly.