India's Upcoming GST Changes: Understanding New Rates, Slabs, and Impact in 2025

India is preparing for significant GST adjustments in September-October 2025, with major reforms expected to streamline the tax framework and simplify compliance. These changes aim to reduce GST slabs, correct inverted tax structures, and decrease GST rates on everyday necessities, packaged food, electronics, and insurance. The reforms were launched on September 22, 2025, as highlighted in the Prime Minister's Independence Day address. These modifications are designed to ease the tax burden, empower MSMEs, and stimulate economic expansion. Key takeaways from these reforms include:

• The government announced three main areas of focus for the next generation of GST reforms on August 15, 2025: structural improvements, rate rationalization, and enhancing the ease of doing business.
• The 56th GST Council meeting, held on September 3, 2025, laid the groundwork for implementing GST 2.0 reforms. A major highlight was the simplification of tax rates into two primary slabs (5% and 18%) by eliminating the 12% and 28% categories. A new 40% GST rate will apply to sin goods.
• These changes are now effective, following notifications issued by the CBIC on September 17, 2025.
• In the near future, compliance will become easier with pre-filled GST returns, quicker refunds, and more straightforward MSME registrations.
• GST reforms are projected to lower costs for essential goods, boost consumer spending, and enhance industrial competitiveness.

What are India's GST Reforms?

On the 79th Independence Day, Prime Minister Shri Narendra Modi underscored GST as a crucial reform. He called for new GST reforms, some of which are detailed below, to support common citizens, farmers, the middle class, and MSMEs. The government's proposals, which received approval from the GST Council during the 56th GST Council meeting, aim to bolster industries, increase economic activity, and foster growth. The Centre has also proposed new GST reforms to the GoMs regarding compensation cess.

Core Principles of India's 2025 GST Changes

Pillar 1: Structural Improvements:

• Inverted duty structure correction: This involves adjusting input and output tax rates to minimize Input Tax Credit (ITC) accumulation and promote domestic value addition.
• Resolving classification issues: The goal is to simplify rate structures, reduce disputes, streamline compliance, and ensure fairness across all sectors.
• Stability and predictability: Providing long-term clarity on rates and policies is crucial for building industry confidence and facilitating business planning.

Pillar 2: Rate Rationalization:

• Lower taxes on essential and aspirational goods: This measure aims to improve affordability, stimulate consumption, and broaden access to these items.
• Reduction of GST slabs: The system is moving towards two main GST slabs—standard and merit—with specific rates reserved for only a few selected items.
• Compensation cess: Its removal frees up fiscal resources for rationalizing and aligning tax rates in a sustainable manner.

Pillar 3: Ease of Living:

• Registration: The process will be smooth, technology-driven, and time-bound, particularly for Micro, Small, and Medium Enterprises (MSMEs) and startups.
• Return: Pre-filled GST returns are expected to reduce manual effort and discrepancies.
• Refund: Exporters and cases involving inverted duty structures will benefit from quicker, automated GST refunds.

The reforms focus on structural adjustments, rate modifications, and improving living standards. These initiatives aim to simplify rates, reduce conflicts, correct inverted duty structures, and enhance the ease of doing business.

September 2025 GST Rate and Slab Revisions

The new GST regime, termed GST 2.0, simplifies the tax framework by reducing slabs and altering rates. Significant adjustments have been made following the 56th GST Council meeting, leading to lower prices for essential items, reduced insurance premiums, and a shift of high-consumption goods into lower tax brackets. GST rate cuts on 200 items took effect from September 22, 2025. Approximately 90% of items previously in the 28% slab have moved to the 18% slab, and nearly 99% of items in the 12% slab are now in the 5% slab.

Key Adjustments: Goods and Services Becoming More or Less Expensive

What gets cheaper

• Removal of 12% slab: Items previously under this slab have been reclassified into the 5% or 18% categories.
• Health & Life Insurance: These services are now exempt from GST.
• Electronics & White Goods (e.g., ACs, TVs, refrigerators, washing machines, cement): GST reduced from 28% to 18%.
• FMCG small sachets (for example, those priced at Rs.10 or less) have moved to the 5% slab.
• Small Cars: GST on small petrol and diesel cars (engine capacity less than 1200cc for petrol, less than 1500cc for diesel, and length under 4m) decreased from 28% to 18%.
• Essential items: Daily-use products, including toothpaste, umbrellas, pressure cookers, sewing machines, small washing machines, and bicycles, are now in the 5% slab.
• Benefiting sectors: This includes textiles, fertilizers, renewable energy, automotive, handicrafts, agriculture, health, and insurance.

What gets costlier

• Luxury & Sin Goods: These items, such as tobacco, gutka, and pan masala, now face a new 40% GST rate.
• Online Gaming: Reclassified as a demerit good, it is subject to the highest tax rate of 40%.

Timeline for GST Implementation Changes

On August 15, 2025, Prime Minister Modi announced forthcoming GST reforms, promising reduced rates before Diwali of 2025. The government, through the GST Council, transitioned to a simplified tax framework of 5% and 18% by removing the existing 12% and 28% tax rates from September 22, 2025, following CBIC notifications. Except for GST on tobacco and its related products, GST rate changes for all other items were implemented from September 22, 2025.

Economic Implications of the 2025 GST Adjustments

The next-gen GST reforms extend beyond merely cutting rates; they are expected to yield significant economic consequences. By rectifying inverted tax structures, these reforms will free up working capital, enhance manufacturing competitiveness, and support the goals of Atmanirbhar Bharat (self-reliant India). For MSMEs, streamlined compliance and reduced rates can lower costs, encourage formalization of the informal sector, and broaden the tax base.

On the consumer side, more affordable goods are anticipated to increase purchasing power. The reduction in prices for white goods should stimulate demand in the consumer durables sector. The eventual elimination of the compensation cess by March 2026 will further facilitate these reforms, positioning GST not only as a taxation instrument but also as a tool for economic growth and policy effectiveness.

India's GST system is poised for substantial future changes. The government aims to make it simpler, more predictable, and more compliant. These next-generation GST reforms address structural issues, lower tax rates on essential goods, and provide support to MSMEs. Both businesses and consumers anticipate a tax system that is more efficient, transparent, and growth-oriented.