GST Rate Cuts 2025: Two-Tier Tax Structure and Key Benefits Explained
Finance Minister Nirmala Sitharaman announced a major GST rate cut following the 56th GST Council meeting held on Wednesday. The decision, which came after 10.5 hours of detailed discussions, marks a historic shift from the four-tier GST structure (5%, 12%, 18%, 28%) to a simplified two-rate system of 5% and 18%, with a special 40% tax slab on luxury and demerit goods.
The revised GST rates will be implemented from September 22, just ahead of Navratri. The move aims to reduce the burden on the common man and middle class by cutting taxes on everyday essentials, food items, and household goods, while also exempting health and life insurance policies.
Key Highlights of the GST Rate Cuts
- ✅ Two-Tier GST Structure: Simplified tax system with 5% (Merit Rate) and 18% (Standard Rate).
- ✅ Special 40% Slab: Applicable to luxury cars, tobacco, cigarettes, and select high-end goods.
- ✅ Zero GST on Essential Foods: UHT milk, paneer, chena, chapati, roti, paratha, parotta.
- ✅ Lower GST for Packaged Foods: Namkeens, sauces, noodles, chocolates, jams, biscuits, and cereals reduced to 5%.
- ✅ Insurance Exemptions: Individual life insurance (term, ULIP, endowment) and health insurance policies (family floater, senior citizen).
- ✅ Appliances GST Cut: Air conditioners, 32-inch TVs, dishwashers, and bikes under 350cc reduced from 28% to 18%.
- ✅ Agriculture Support: GST on tractors, harvesting equipment, and farming tools reduced to 5%.
- ✅ Everyday Household Goods: Hair oil, soaps, shampoos, toothbrushes, toothpaste, bicycles, kitchenware down to 5%.
- ✅ Labour-Intensive Industries: Handicrafts, leather goods, and stone blocks taxed at just 5%.
- ✅ Cement & Construction: Cement reduced from 28% to 18%.
- ✅ Healthcare Boost: Lifesaving drugs exempted, other medicines and medical equipment see reduced rates.
- ✅ Renewable Energy & Fertilisers: Lower tax rates to promote sustainability and agriculture.
- ✅ Hospitality & Wellness Services: Tax rationalisation to make services more affordable.
Sector-Wise GST Reduction List
🛒 Everyday Household Items – Reduced to 5%
- Hair oil
- Toilet soaps & bars
- Shampoos
- Toothbrushes & toothpaste
- Bicycles
- Tableware & kitchenware
🥘 Food & Beverages
- Zero GST: UHT milk, paneer, chena, Indian breads (roti, chapati, paratha, parotta)
- Reduced to 5%: Butter, ghee, dry fruits, condensed milk, namkeens, bhujia, jam, sauces, noodles, chocolates, fruit pulp, juices, pastries, biscuits, ice cream, cereals, sugar confectionery, preserved meat, milk-based beverages, 20-litre packaged water
🚜 Agriculture
- Tractors
- Harvesting equipment
- Farming tools
🏭 Industries & Construction
- Cement – reduced from 28% to 18%
- Handicrafts, stone blocks, leather goods – now 5%
💊 Healthcare
- Complete exemption on lifesaving drugs
- Reduced GST on medicines & medical equipment
- Zero GST on individual health insurance (family floater, senior citizen policies)
- Zero GST on life insurance (term plans, ULIPs, endowment)
🏠 Appliances & Vehicles
- Air conditioners
- 32-inch televisions
- Dishwashers
- Two-wheelers under 350cc
(All reduced from 28% to 18%)
Revenue & State Perspectives
While the reforms have been welcomed unanimously by all states, West Bengal Finance Minister Chandrima Bhattacharya warned of an expected ₹47,700 crore revenue deficit due to these rate cuts. However, states such as Uttar Pradesh and Bihar confirmed strong support, highlighting the collective nature of the decision.
Prime Minister Narendra Modi, in his Independence Day speech, had already hinted at major GST reforms, and this new framework reflects the Centre’s commitment to easing tax compliance and boosting affordability for citizens.
The new GST rate rationalisation is set to make everyday essentials, food products, healthcare, and household goods cheaper for millions of Indians. By simplifying the system into a two-tier structure, the government aims to enhance affordability, promote industry growth, and ease tax compliance, while balancing revenue needs with economic welfare.
This bold move is not just a tax reform—it’s a step towards creating a simpler, people-friendly GST system that puts more money back into the hands of the common man.
