GST Council Clears Two-Tier Tax Slabs; ₹48,000 Crore Revenue Impact Expected

In Brief: What We Will Discuss Today

• The GST Council’s decision to move from a four-slab to a two-slab tax structure.
• Net revenue implications of the new framework.
• Overview of recent GST rate changes for goods and services.
• Impact on essential goods, sin goods, and middle-class consumption items.
• Exemptions and benefits for insurance and healthcare sectors.
• Impact on India’s tax and revenue system.

In a major step towards simplifying India’s Goods and Services Tax (GST) regime, the GST Council, chaired by Finance Minister Nirmala Sitharaman, has approved a restructuring of the tax framework. The existing four-tier system of 5%, 12%, 18%, and 28% will now be replaced with two standard rates: 5% for essentials and 18% for non-essentials. A special 40% slab applies to “sin goods” like tobacco, aerated beverages, and luxury vehicles over ₹50 lakh. This landmark decision was taken unanimously in the 56th Council meeting and will take effect from September 22, 2025, coinciding with the start of Navratri. Certain tobacco-related products will continue to attract special conditions.

Net Revenue Implications

Revenue Secretary Arvind Shrivastava stated that, according to consumption data from the fiscal year 2023–2024, the revised structure is anticipated to have a net revenue impact of almost ₹48,000 crore. While the headline figure may suggest a dip in collections, Shrivastava emphasized that rate rationalization often encourages buoyancy in economic activity, leading to wider compliance and healthier revenue inflows over time.

GST Latest Notifications – Key Rate Changes

• Nil GST: Life-saving drugs, ultra-high temperature milk, paneer, and Indian breads such as roti, chapati, and paratha.
• Reduced to 5%: Namkeen, bhujiya, sauces, instant noodles, coffee, ghee, butter, chocolates, spectacles, goggles, man-made fibre and yarn.
• Reduced to 18%: Small cars and motorcycles up to 350 cc will now attract 18% GST instead of 28%.
• Reduced to 18%: Cement, buses, trucks, ambulances, 3-wheelers, and all auto parts.
• 40% GST: Pan masala, gutkha, cigarettes, chewing tobacco, carbonated drinks, luxury cars, private jets, helicopters, and yachts.

Benefits for Insurance and Healthcare

One of the most consumer-friendly reforms announced is the GST exemption on life and health insurance policies, including family floater plans and senior citizen coverage. This is expected to reduce costs for individuals and encourage greater insurance penetration. Life-saving medicines and certain cancer drugs will now attract zero GST, further easing the financial burden on patients.

Wider Implications

This structural change in the goods and services tax system simplifies compliance for businesses and reduces confusion for consumers. By aligning multiple rates into two broad categories, the move is expected to make the tax system more predictable and transparent. Importantly, while income tax remains outside the scope of this decision, the GST reforms are likely to complement broader fiscal strategies aimed at boosting consumption and improving compliance. The GST Council will meet again on September 4, 2025, for further discussions on implementation details. For more such GST latest notifications and financial updates, keep visiting our website.

FAQs on the Latest GST Updates

1. When are the new GST rates going into effect? The revised GST structure will be implemented on September 22, 2025, which also happens to be the first day of Navratri. Most goods and services will shift to the new rates from this date, with a few exceptions for tobacco-related products. 2. What are the new GST slabs announced by the Council?

• 5% GST for essential items
• 18% GST for non-essentials
• 40% GST for sin goods like tobacco, aerated beverages, luxury cars, private jets, and yachts

3. Which goods and services will become cheaper under the new structure? Items such as cement, small cars, motorcycles below 350cc, televisions, dishwashers, and air conditioners will now be taxed at a lower rate. Essentials like milk, paneer, roti, and life-saving medicines will attract nil GST. 4. How does this change impact insurance and healthcare costs? The GST Council has announced a complete exemption on life and health insurance policies, including family floater and senior citizen plans. Additionally, life-saving drugs and certain cancer treatments are now GST-free, reducing healthcare expenses. 5. What is the expected revenue impact of this reform? According to Revenue Secretary Arvind Shrivastava, the net revenue implication is expected to be around ₹48,000 crore, based on 2023–24 data. However, the Council believes the simplification will encourage better compliance and generate economic buoyancy over time.