NEW DELHI— The GST Council, which is led by Union Finance Minister Nirmala Sitharaman, has approved a historic change to the Goods and Services Tax (GST). Many people saw this as a “Diwali gift” to the country. After a long, one-day discussion, the Council resolved to make the tax system easier by cutting it down from four slabs (5%, 12%, 18%, and 28%) to two primary rates: 5% for necessary items and 18% for non-necessary goods. There will be a special 40% tax on “super luxury” and “sin” goods.
The amendments will go into effect on September 22, 2025. The government thinks that the tax cuts will promote local demand, especially because Indian exports are facing new problems because of high U.S. tariffs. The measures are expected to bring in ₹48,000 crore in net revenue.
Big Wins for Regular People and Important Industries
Minister Sitharaman says that the reforms are meant to help the economy by giving the average person a lot of relief and helping important parts of the economy. There was a study of each item to make sure that the benefits are passed on to customers.
Household Essentials: The tax rate on several everyday items, such toothpaste, soaps, shampoos, and hair oil, will go from 18% to 5%. In the same way, the tax rate on butter, cheese, and ready-to-eat items will go down from 12% to 5%.
Consumer Electronics and Cement: Big things like TVs, air conditioners, refrigerators, and washing machines will go from 28% to 18%. The GST on cement will also be down from 28% to 18%. This is intended to help the construction industry.
The council said that all individual health and life insurance policies would not have to pay GST. Also, the agriculture sector will profit from lower prices for tractors and other farming tools.
Automobiles: The tax on compact automobiles (with engines smaller than 1,200cc) and two-wheelers with engines up to 350cc will go down from 28% to 18%. This is a big help for the car business. But there will be a new 40% tax on mid-sized and premium cars and two-wheelers with engines larger than 350cc.
States and experts have different things to say.
Narendra Modi, the Prime Minister, said that the “wide-ranging reforms” would “improve the lives of our citizens and make it easier for everyone to do business.” Sitharaman commended the “spirit of cooperative federalism” that made everyone agree.
However, other states run by the opposition were worried about losing money. According to Kerala’s Finance Minister K.N. Balagopal, states have called for “some kind of compensation” to make up for lost revenue. Omar Abdullah, the Chief Minister of Jammu and Kashmir, said that the reforms could cut his region’s income by 10 to 12 percent. This is especially concerning because of the financial crisis that followed recent terrorist attacks.
Most specialists in the field have praised the decision, saying that it came at the right time, just before the holidays. “The timing of these changes couldn’t have been better,” said Pratik Jain, a partner at Price Waterhouse & Co LLP. “Diwali has come earlier for the common man.” Experts also said that firms would need to get ready for the changes by controlling their stock and changing their prices so that customers could easily get the benefits.
Along with lowering rates, the GST Council also approved major administrative changes. For example, the GST Appellate Tribunal will be up and running by the end of September to make it easier and faster to settle tax issues.