Akash looks at India’s GST 2.0, launched on September 22, 2025, which streamlines tax slabs, boosts consumer savings, and redefines indirect taxation efficiency nationwide, for Different Truths.

On 22 September 2025, India’s revised Goods and Services Tax (GST) regime, widely referred to as GST 2.0, came into effect, introducing one of the most significant overhauls in indirect taxation since the original GST rollout in 2017. Under the new structure, all goods and services are now liable to just four possible tax rates: 0% (exempt/NIL), 5%, 18%, and 40% (for luxury or sin/demerit goods). The Finance Minister, Nirmala Sitharaman, has stated that the changes will put approximately ₹2 lakh crore back into the hands of consumers. Below is an expanded examination of what the changes mean, what items are affected, how different sections of society are likely to gain and what possible costs or caveats there are.

What has changed

1. Simplified tax slabs: Before the change, there were four main GST slabs for most goods and services: 5%, 12%, 18%, and 28%, along with additional cesses on luxury/sin goods. The new GST 2.0 collapses most goods and services into just two primary slabs (5% and 18%), plus the higher 40% rate for luxury/sin articles, and 0% for essential items.

2. Which items are now exempt / at 0%: Many staples and essentials have been moved to the 0% bracket. These include:

• Daily food items: milk, bread, and certain dairy derivatives.
• Pre-packaged / labelled chhena/paneer, roti, khakra, etc.
• Some medicines (including life-saving ones) and educational essentials.

3. Items now taxed at 5%: The 5% rate now applies to many items that were earlier taxed higher. Some of these are:

Household and daily use items: soaps, shampoos, toothpaste, toilet soaps.

Some foods and dairy products (but not all), such as butter, ghee, cheese and dairy spreads moving from 12–18% to 5%.

Snacks and packaged foods, stationery, etc.

4. Items taxed at 18%: The 18% slab becomes the “standard” or majority category, covering many goods and services formerly taxed at 12% or 28%. Examples include:

Electronics and appliances previously in higher slabs (e.g. large TVs, refrigerators).

Small cars, motorcycles (≤350 cc).

Many clothing items (though there is a caveat: clothes above a certain price point may attract a higher rate).

5. 40% slab for luxury/sin goods: This category applies to ultra-luxury goods, certain sin or demerit products (e.g. tobacco, cigarettes, gutkha, perhaps high-end luxury vehicles/items).

6. Expected fiscal and wider economic effects: The government estimates the reforms will inject about ₹2 lakh crore into consumers’ pockets by reducing the tax burden on many everyday goods.

Many manufacturers/retailers are reported to be reducing MRP (maximum retail price) where possible, passing on the benefit.

The reforms are seen as targeting relief for the poor, middle class, MSMEs, farmers, etc. Also timed to coincide with festivals (Navratri, etc.), thus boosting discretionary spending.

Who gains most

Consumers, especially middle and lower-income households

Cheaper prices on everyday essentials, personal care items, milk/dairy, etc., translate to lower monthly expenses. Every household, especially those with tight budgets, will feel relief in groceries, toiletries, transportation, etc.

Small businesses / MSMEs

Simpler tax compliance, fewer slabs, clearer categorisations, reduced administrative burden. Also, lower GST on inputs (if passed through) may reduce costs. Demand may go up, which helps their sales.

Industries producing for mass consumption:

Companies making consumer goods, personal care, food, appliances, vehicles, etc., may see higher demand, better volumes, which could lead to economies of scale, possibly more employment.

States and Government

There is some cost to the exchequer in terms of foregone tax revenue, but the government appears to be banking on stimulus to consumption to partially offset losses via higher economic activity. Also, the GST Council (Centre & States together) have agreed the adjustments.

Possible downsides, challenges, and caveats

Revenue risks: Whenever tax rates are lowered, especially across many items, there is a risk of revenue shortfalls. The gravity of the shortfall depends on how much of the benefit is passed on by businesses, and how strongly consumption increases to offset lower rates.

Implementation/compliance issues: Ensuring that businesses update billing/invoicing systems, point of sale software, supply chains, packaging, etc. Mistakes or slips could cause confusion or legal issues. Some businesses may be slow in passing on reductions.

Items that get costlier: Not everything is cheaper. Some items which were earlier taxed at lower rates or exemptions may move to higher rates. For example, clothes priced above a threshold now attract 18% instead of 12%. Luxury cars or premium goods may face higher GST (and possibly cess) burdens.

Cascading/transition effects: For items in stock sold just before or during the transition, or with packaging printed with older tax rates, there may be complications. Also, supply chains need to adjust. Retailers may not immediately reduce prices if old inventory remains. There could be short-term distortions.

State revenues & sharing: Although Centre and States share GST revenue, the reduced rates mean a smaller base. States depending more on their own tax/excise revenues might feel more pressure. There could be political/policy friction if states feel short-changed or if promised compensations aren’t sufficient.

Broader significance & context

Inflation control/relief: In an environment where inflation (especially food, fuel, and consumer goods) has been a concern, lowering GST on common goods helps moderate the inflationary burden. It also increases “real income” for consumers.

Festive timing: The reforms take effect from 22 September, aligning with Navratri. This is meaningful: festivals are times of high consumer spending in India, especially for clothing, sweets, gifts, etc. By introducing the new regime now, the government intends to give a stimulus to festive demand.

Political economy: These reforms might be seen as part of the government’s efforts to shore up public sentiment in advance of elections, to shore up middle-class and rural support. Also, the messaging around “savings festival”, “putting money back in people’s hands”, “Aatmanirbhar Bharat”, etc., points to goals beyond pure economics.

Long-term structural change: A simpler slab structure reduces ambiguity. It may reduce litigation, reduce complexity in GST Council decision-making, and make administration more efficient. If successful, this may pave the way for further simplifications or fine-tuning.

Estimations & Numbers: About 99% of items previously in the 12% slab have been shifted to the 5% slab.

About 90% of items in the 28% slab have moved into the 18% bracket.

The estimated value of reduced burden (i.e. money saved by consumers) is ~ ₹2 lakh crore.

What to watch out for

Whether businesses uniformly pass on the tax savings to consumers. If some do not, then the intended benefit may be muted.

How the higher 40% slab impacts luxury/ “sin” items: what exactly counts, and whether people shift consumption behaviour. Will this discourage certain high-end consumption, or lead to substitution or smuggling, etc.?

The reaction of state governments: whether states see their GST receipts fall significantly, and whether there is compensation or fiscal stress.

Longer term inflation: while tax cuts can reduce cost components, if input costs, fuel, logistics, etc., remain high, then overall inflation may not be reduced securely.

Monitoring of enforcement, compliance, and avoidance issues (e.g. misclassification of goods, under-invoicing, etc.).

Examples: What becomes cheaper, what may become more expensive

Cheaper: Products like soaps, shampoos, and toothpaste: many have moved from 18% to 5%.

Small cars, two-wheelers (≤350cc) move from a 28% slab to 18%.

Many dairy items, snacks, etc.

More expensive or same/mixed effect

Clothes above a certain value (e.g. those priced above ₹2,500) now attract 18% instead of 12%.

Luxury vehicles, premium items, etc., may face a heavier tax burden (40% slab) or more of the tax burden.

Conclusion

The new GST rate framework represents a bold attempt to simplify India’s indirect tax regime, reduce burdens on consumers, and stimulate consumption and economic growth. For many households, especially those spending a higher share of income on essentials, the benefits will be tangible and prompt. For businesses, especially those in mass consumer goods, there is potential for volume growth and cost savings.

However, as with all major tax reforms, the ultimate success will depend on effective implementation, ensuring the tax cuts are passed through, protecting state finances, and maintaining fiscal discipline while fostering economic stimulus. If these elements are well managed, GST 2.0 could mark a turning point in making taxation more equitable, simpler, and growth-friendly in India.

Picture design by Anumita Roy

Akash Paul

Akash Paul, a renowned criminologist, theologian, and demonologist, and the author of two globally acclaimed textbooks, pioneered post-crime analysis in criminology and comparative religious studies in theology. His expertise spans criminal profiling, sexual offenses, Christianity, and religious history, with notable contributions to each of these fields. An insightful critic of contemporary society, he also writes poetry, short stories, and novels, blending creativity with profound societal analysis.

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