India's GST 2.0 Reforms: Analyzing Cheaper and Costlier Goods in 2025

India's indirect tax framework underwent a significant transformation with the introduction of the next-generation Goods and Services Tax (GST) reforms, known as GST 2.0. These changes, initially announced by Prime Minister Shri Narendra Modi on August 15, 2025, and subsequently endorsed by the 56th GST Council Meeting on September 3, 2025, streamline the tax regime into primarily two standard rates. The revisions aim to reduce the Goods and Services Tax on everyday necessities and medical supplies, while maintaining elevated rates for premium and demerit goods. These citizen-focused and business-friendly reforms are designed to improve living standards, simplify tax adherence, and stimulate economic expansion across India.

Key Highlights

• The GST 2.0 reforms introduce a streamlined tax framework with a standard 18% rate and a 5% merit rate, alongside a 40% demerit rate applied to luxury and specific goods.
• Numerous essential commodities and everyday items, such as certain Indian breads, UHT milk, paneer, savory snacks (namkeens), chocolates, personal care products (shampoos, soaps), bicycles, and kitchen tools, have become more affordable due to the updated GST rates for 2025.
• The healthcare sector receives substantial benefits, with complete GST exemptions for life and health insurance policies, and considerable rate reductions for essential medicines, critical drugs, medical devices, and diagnostic tools.
• Industries focused on agriculture and labor, including manufacturers of tractors, farm machinery, fertilizers, pesticides, handicrafts, textiles, and marble/granite blocks, experience advantages from the rationalized tax rates.
• Adjustments in the automotive sector see a reduction in GST from 28% to 18% for small cars, motorcycles (under 350cc), buses, trucks, ambulances, and three-wheelers, though higher rates persist for large luxury vehicles.
• The construction and housing sectors benefit from a GST decrease on cement, moving from 28% to 18%, which helps to lower building expenses.
• Conversely, luxury and demerit goods now face higher costs, with a significant 40% GST applied to tobacco items, pan masala, sweetened beverages, high-end cars, yachts, firearms, as well as casino, betting, and online gaming services.
• Revisions within the service industry lead to more economical hotel accommodations priced under ₹7,500, beauty and wellness treatments, renewable energy solutions, transportation of essential goods, and cultural/artistic products.

Items Becoming More Affordable

This section details various goods and services that have experienced a reduction in their GST rates, making them cheaper for consumers.

GST Rate Reductions: 18% to Nil

The following items are now entirely exempt from GST, dropping from an 18% rate:

• Indian breads (e.g., paratha, parotta)
• All individual life and health insurance policies and their reinsurance
• Technical documentation related to goods already exempted under Customs Notification No. 19/2019
• Natural cut and polished diamonds up to 1/4 carat, specifically those imported under a Diamond Imprest Authorisation
• Original works of art and antiques
• Flight motion and target motion simulators, including their parts
• Components and sub-assemblies for HACFS (High-Altitude Combat Flight System)
• Low noise amplifiers and vent guide assemblies designed for the MRSAM (Medium-Range Surface-to-Air Missile) system
• Parts and sub-assemblies of IADWS (Integrated Air Defence Weapon System)
• Military transport aircraft (C-130, C-295MW models)
• Deep submergence rescue vessels
• Unmanned underwater vessels and platforms
• Ejection seats designed for fighter aircraft
• High-performance batteries for drones and specialized equipment
• Communication devices, including advanced software-defined radios and related accessories
• Air diving and rebreather sets, diving systems, components, and accessories
• Sonobuoys utilized for naval air assets
• Ship-launched missiles
• Rockets exceeding 100mm caliber
• Remote Piloted Aircraft (RPA) designated for military applications
• Various military goods' parts, sub-assemblies, spares, accessories, tools, testing equipment, and literature, with some exceptions

GST Rate Reductions: 12% to Nil

Items now fully exempt from GST, previously taxed at 12%:

• Printed maps, hydrographic charts, atlases, and globes
• Pencil sharpeners
• Writing instruments such as pencils, crayons, pastels, drawing charcoals, and tailor's chalk
• Notebooks (exercise, graph, laboratory types)
• Thirty-three critical medications, including specific drugs like Onasemnogene and Mepolizumab

GST Rate Reductions: 5% to Nil

Goods that are now GST-exempt, reduced from a 5% rate:

• Erasers
• UHT milk, pre-packaged paneer, pizza bread, khakhra, chapati, and roti
• Three critical medications, specifically Agalsidase Beta, Imiglucerase, and Eptacog alfa

GST Rate Reductions: 18% to 5%

A range of products see their GST rate cut from 18% to 5%:

• Everyday necessities including talcum powder, toilet soap, dental care products, and various hair care and grooming items
• Fertilizers such as Sulphuric acid, Nitric acid, and Ammonia
• Agricultural diesel engines with a capacity exceeding 250cc
• Tractor components like tires, tubes, wheel rims, housings, bumpers, hydraulic pumps, brakes, gearboxes, transaxles, wheels, radiators, silencers, clutches, steering wheels, and fenders
• Extracts and beverages, including malt and vegetable extracts, coffee and tea extracts, plant-based milk drinks, and bottled waters
• Fats, oils, and waxes, specifically margarine, glycerol, vegetable waxes, and insect waxes
• Sugars and sweeteners, encompassing various sugars, sugar syrups, and cocoa products like butter, powder, and chocolate
• Cereals and baked goods
• Prepared and processed foods, such as soups, broths, edible ice, and other food preparations
• Additives and derivatives, including gelatin and starch-based glues
• Medical thermometers and instruments used for physical or chemical analysis in medical contexts
• Unmanned aircraft
• Services related to beauty and physical well-being
• Synthetic filament tow, staple fibers, and waste from manmade fibers
• Bidi wrapper leaves (tendu) and Indian katha

GST Rate Reductions: 12% to 5%

Several items have their GST rate lowered from 12% to 5%:

• Condensed milk, butter, dairy fats, and cheese
• Dried nuts and fruits like Brazil nuts, almonds, and pistachios, along with various dried fruits such as dates, figs, citrus, and mixed nuts/fruits
• Starches and inulin
• Animal fats and oils, including pig fats, bovine fats, lard, and fats from fish and marine mammals
• Sausages, preserved meat, and extracts/juices from aquatic animals
• Refined sugar and sugar confectionery
• Pasta and extruded snacks
• Preserved vegetables, fruit products, jams, and jellies
• Fruit and vegetable juices, and pre-packaged tender coconut water
• Roasted coffee substitutes, yeasts, sauces, and seasonings
• Texturized proteins and ready-to-eat savory snacks (namkeens)
• Diabetic foods
• Drinking water and soya milk drinks
• Fruit pulp and milk-based beverages
• Fundamental household and personal care products
• Kitchen and tableware made from wood, porcelain, or metal utensils
• Sewing-related items, including machines, parts, and needles
• Non-motorized cycles and their accessories
• Furniture crafted from bamboo, cane, or rattan
• Lanterns, lamps, and chimneys
• Baby care products like napkins and diapers
• Footwear priced up to Rs. 2500 per pair (subject to a value cap)
• Fixed-speed diesel engines up to 15HP
• Hand pumps, drip irrigation nozzles, and sprinkler systems
• Machinery and parts utilized in agriculture, forestry, harvesting, threshing, poultry-keeping, beekeeping, germination, and composting
• Tractors up to 1800CC and self-loading/unloading agricultural trailers
• Hand-propelled and animal-drawn vehicles
• Fertilizers and pesticides, including Gibberellic acid, specified bio-pesticides, Neem-based pesticides, and registered micronutrients
• Sand lime bricks and stone inlay work
• Two-way radios (walkie-talkies) for defense, police, and paramilitary forces
• Motorized tanks, armored fighting vehicles, and their parts
• Mathematical, geometry, and color boxes
• Idols, statues, and ornamental articles made from wood, stone, or metal
• Carved ivory, bone, tortoise shell, horn, coral, and mother of pearl
• Hand-painted/drawn art, prints, engravings, and lithographs
• Collectors' items across zoological, botanical, historical categories, and antiques
• Handcrafted candles, handbags, and carved woodware
• Wooden frames, statuettes, wood marquetry, and lacquer work
• Cork artware, including sholapith
• Handmade embroidered shawls exceeding Rs. 2500 in value
• Carved stone products and stone artware
• Ceramic statuettes, tableware, and kitchenware
• Ornamental mirrors and glass artware
• Artware made of iron, brass, copper alloys, and aluminum
• Base metal statuettes, ornaments, picture frames, and mirrors
• Handcrafted lamps, bamboo/rattan/cane furniture
• Traditional Indian toys made from wood, metal, or textile
• Traditional handcrafted cards (Ganjifa)
• Worked vegetable/mineral carvings, wax/stearin products, and natural gums/resins
• Traditional hand paintings (e.g., Mysore, Rajasthan, Tanjore, Palm leaf, Basoli styles)
• Original sculptures and statuary in any material
• Handmade paper and paperboard
• Anesthetics and essential medical gases like Potassium Iodate, Medical oxygen, and Hydrogen peroxide
• General drugs and medicines, encompassing biologics and immunotherapies
• Organs and biological extracts intended for therapeutic use
• Blood and immunological products, including antisera and toxins
• Medicaments and pharmaceutical products, covering Ayurvedic, Unani, and Homoeopathic preparations
• Medical dressings, gauze, and bandages
• Sterile surgical goods and pharmaceutical items
• Diagnostic kits and reagents
• Medical gloves
• Blood glucose monitoring systems and associated test strips
• Medical devices for cardiac care, such as occlusion devices
• Vision correction spectacles and goggles
• Medical, surgical, and dental instruments, along with electro-medical apparatus
• Therapeutic and respiratory apparatus, massage equipment, and psychological testing equipment
• Breathing appliances and gas masks (excluding simple masks)
• Radiographic and radiotherapy apparatus
• Personal use drugs and medicines
• Job work services pertaining to umbrellas; printing of goods under Chapter 48 or 49; bricks; pharmaceutical products (Chapter 30); hides, skins, and leather (Chapter 41)
• Prepared leather after tanning or crusting of bovine, equine, sheep, lamb, and other animals (hairless or woolless, excluding heading 4114)
• Chamois, patent, patent laminated, metallized leather, and composition leather (in slabs, sheets, strips, parings, dust, or powder forms)
• Skins, feathers, down, and parts of birds (excluding heading 0505)
• Live horses
• Marble blocks and granite blocks
• Natural menthol and related products (menthol crystals, peppermint oil, fractionated/de-terpinated oils, spearmint oil, and mentha piperita oil)
• Photographic plates and film for X-ray, exposed/developed photographic films (excluding cinematographic films)
• Silicon wafers, plastic beads, latex rubber thread, and rubber bands
• Whips, riding crops, pots, and jars used for the conveyance and packing of ceramic goods
• Corrective glasses, flint buttons, lamp and lantern globes, and kerosene wick lamp parts
• Milk cans made of iron, steel, or aluminum
• Animal shoe nails
• Non-electric bells, gongs, ornaments, photo frames, mirrors, and metal bidriware
• Hand-operated rubber rollers
• Contact lenses, spectacle lenses, frames, and mountings
• Coir products (excluding coir mattresses)
• Slide fasteners and their parts
• Fuel elements (non-irradiated cartridges) for nuclear reactors
• Third-party insurance for goods carriage
• Admission to cinematograph film exhibitions where the ticket price is Rs 100 or less
• Effluent treatment services provided by Common Effluent Treatment Plants
• Biomedical waste treatment/disposal services by common biomedical waste treatment facilities for clinical establishments
• Hotel accommodation with a value up to Rs 7500 per unit per day
• Mechanical wood pulp, chemical wood pulp (soda or sulphate), chemical wood pulp (sulphite), mixed mechanical/chemical pulp, and recovered fiber pulps
• Paper and paperboard packaging, including boxes, pouches, cartons, trays, sacks, and biodegradable bags
• Solar cookers, solar water heaters, and related systems
• Renewable energy devices and parts, such as bio-gas plants, solar power devices, wind mills, waste-to-energy plants, solar lanterns, tidal energy devices, and photovoltaic cells
• Fuel cell motor vehicles, including hydrogen vehicles based on fuel cell technology
• Gloves specifically designed for sports
• Toys like tricycles, scooters, pedal cars, and their parts/accessories (excluding electronic toys)
• Playing cards, chess, carom, and board games like ludo (excluding video game consoles and machines)
• Sports goods, other than general physical exercise equipment
• Fishing rods, line fishing tackle; fish landing nets, butterfly nets, and decoy birds (excluding headings 9208 and 9705)
• Sewing threads, yarns, wadding, felt, nonwovens, rubberized yarns and fibers (manmade filaments and staple)
• Metallized and gimped yarns, chenille, twine, cordage, and ropes (headings 5404, 5405)
• Carpets and textile floor coverings (knotted, woven, tufted, or felt)
• Terry toweling, gauze, tulles, lace, tapestries, labels, badges, braids, embroidery, and quilted textiles
• Coated or impregnated textile fabrics, tire cord fabric, wall coverings, painted canvas, wicks, tubing, and belts
• Technical textile products (felt, woven fabrics, bolting cloths, gaskets, washers), and various caps and hats
• Quilted textile products and made-up textiles with a value up to 2500 rupees, and articles of apparel and clothing accessories with a value up to 2500 rupees
• Particle boards, encompassing cement-bonded, jute, rice husk, glass-fiber reinforced gypsum, sisal-fiber, bagasse, cotton stalk, and agricultural crop residue boards
• Hoopwood, split poles, piles, pickets, stakes, and roughly trimmed wooden sticks suitable for walking sticks, umbrellas, and tool handles
• Wood wool, wood flour, and railway sleepers
• Veneering sheets, plywood, and laminated wood sheets, including those for match splints (thickness 6 mm)
• Bamboo flooring and bamboo wood building joinery
• Wooden packing cases, boxes, crates, cable drums, pallets, pallet collars, casks, barrels, vats, tubs, and coopers' products
• Wooden tools, handles, broom and brush bodies, and boot/shoe lasts and trees
• Wood marquetry, inlaid wood, caskets, jewelry/cutlery cases, statuettes, ornaments, and wooden furniture
• Other wooden articles, including clothes hangers, spools, bobbins, sewing reels, match splints, pencil slats, boat parts, and decorative domestic articles (excluding wood paving blocks and densified wood)
• Natural cork (debacked or roughly squared), cork articles (corks, stoppers, shuttlecock bottoms), agglomerated cork, and articles
• Transport of goods in containers by rail by entities other than Indian Railways
• Renting of goods carriage with an operator, including fuel costs (within the same line of business)
• Multimodal transport of goods entirely within India (without any air leg)

GST Rate Reductions: 28% to 18%

Key goods and services now fall under the 18% GST slab, down from 28%:

• Portland cement and comparable hydraulic cements
• Air-conditioning machines equipped with fans and temperature/humidity control, household dishwashing machines, television sets, monitors, projectors, and related reception devices
• All dutiable articles intended for personal use
• Bidi
• New pneumatic tires made of rubber (excluding those for bicycles, cycle-rickshaws, tractor rear tires, and aircraft)
• Road tractors with engines exceeding 1800cc
• Motor vehicles designed to transport 10 or more individuals (excluding bio-fuel exclusive buses)
• Petrol, LPG, or CNG motor vehicles with engine capacities up to 1200 cc and lengths below 4000 mm
• Diesel motor vehicles with engine capacities up to 1500 cc and lengths below 4000 mm
• Factory-fitted ambulances
• Three-wheeled vehicles
• Hybrid vehicles (spark-ignition + electric motor) with engines up to 1200 cc and lengths below 4000 mm
• Hybrid vehicles (compression-ignition + electric motor) with engines up to 1500 cc and lengths below 4000 mm
• Motor goods vehicles (excluding refrigerated types)
• Chassis, bodies (including cabs), parts, and accessories for motor vehicles (under headings 8701 to 8705, except specific tractor parts)
• Motorcycles (including mopeds) with engine capacities up to 350 cc
• Parts and accessories for vehicles under heading 8711
• Rowing boats and canoes
• Motor vehicle seats
• Spark-ignition and compression-ignition internal combustion piston engines (non-aircraft)
• Engine parts primarily for engines classified under heading 8407 or 8408
• Pumps for dispensing fuel/lubricants at service stations and pumps for engine cooling
• Electric accumulators (excluding Lithium-ion types), including separators
• Electrical ignition/start equipment for spark/compression ignition engines, generators, and cut-outs

Items Becoming More Expensive

This section outlines various goods and services that have experienced an increase in their GST rates, making them costlier for consumers.

GST Rate Increases: 5% to 18%

The following items have moved from a 5% to an 18% GST rate:

• Coal, briquettes, ovoids, and other solid fuels
• Lignite, brown coal, and soft brown coal (initial forms of coal), and peat

GST Rate Increases: 12% to 18%

Several goods and services have seen their GST rate rise from 12% to 18%:

• Composite works contracts specifically for offshore oil and gas exploration and production
• Composite earthwork contracts where 75% or more of the value is for government projects
• Composite works contracts performed by subcontractors for the government
• Job work services not categorized elsewhere (residual entry)
• Menthol products other than natural menthol (variants as previously specified)
• Odoriferous preparations designed for burning, excluding traditional incense types (agarbattis, lobhan, dhoop variants)
• Biodiesel, except when supplied for blending with High-Speed Diesel (HSD)
• Goods related to petroleum exploration, mining, and specific contractual petroleum operations
• Professional, technical, business, and support services for petroleum crude/natural gas exploration, mining, and drilling
• Chemical wood pulp dissolving grades
• Various uncoated paper and paperboard for writing, printing, graphic purposes, and kraft paper
• Specialty papers: greaseproof, glassine, composite, corrugated, creped, and coated paper
• Articles of apparel, clothing accessories, made-up textile articles, cotton quilts, and quilted textiles with a value exceeding 2500 rupees
• Air transport of passengers in classes other than economy
• Passenger transport by motor vehicle where fuel cost is included (excluding services within the same line of business)
• Transport of goods in containers by rail by entities other than Indian Railways
• Transportation of natural gas, petroleum crude, motor spirit, high-speed diesel, or ATF via pipeline
• Transport of goods by Goods Transport Agency (GTA)
• Renting of motor vehicles with an operator for passenger transport, including fuel costs
• Renting of goods carriage with an operator, including fuel costs
• Multimodal transport of goods entirely within India

GST Rate Increases: 28% to 40%

Luxury and demerit goods now attract a significantly higher GST rate of 40%, up from 28%:

• Pan masala
• Sugary and flavored beverages, including carbonated drinks
• Caffeinated beverages
• Revolvers and pistols (excluding those under headings 9303 and 9304)
• Smoking pipes, cigar or cigarette holders, and their parts
• Unmanufactured tobacco and tobacco refuse (excluding tobacco leaves); Cigars, cheroots, cigarillos, cigarettes; other manufactured tobacco and substitutes, including homogenized/reconstituted tobacco, extracts, and essences
• Products containing tobacco or nicotine substitutes intended for inhalation without combustion
• Motor cars and other passenger motor vehicles (those not categorized under the 18% slab)
• Hybrid vehicles (spark-ignition + electric motor) with engine capacities above 1200 cc or lengths exceeding 4000 mm
• Hybrid vehicles (compression-ignition + electric motor) with engine capacities above 1500 cc or lengths exceeding 4000 mm
• Motorcycles with an engine capacity exceeding 350 cc
• Aircraft intended for personal use
• Yachts and pleasure or sports vessels
• Admission to casinos, race clubs, and major sporting events (e.g., IPL)
• Race club services involving the licensing of bookmakers
• Leasing or rental services (without an operator) for goods subject to the 40% GST rate
• Betting, casinos, gambling, horse racing, lottery, online money gaming, and actionable claims