The Goods and Services Tax (GST) Council has rolled out GST 2.0, India’s most ambitious tax reform since 2017. Effective September 22, 2025, this new structure simplifies tax slabs and significantly impacts key sectors like appliances, automobiles, healthcare, education, hospitality, and luxury goods.
The 56th GST Council meeting held on 3rd September 2025 has approved a major rationalisation of India’s GST structure, effective from 22nd September 2025.
Key Announcements from the GST Council:
- GST rate structure simplified from four slabs (5%, 12%, 18%, 28%) to three slabs:
- Merit Rate: 5% – Essential items and priority sectors
- Standard Rate: 18% – Most goods and services
- Demerit Rate: 40% – Sin goods and luxury items
- Health & Life Insurance premiums made exempt (Nil GST).
- Dairy products, 33 lifesaving drugs, and educational essentials moved to Nil GST rate.
- Daily essentials, agriculture goods, healthcare equipment shifted to 5% GST.
- Electronic appliances, small cars, and motorcycles ≤350cc reduced to 18% GST.
- Sin goods like pan masala, aerated waters, caffeinated and carbonated beverages (including fruit drinks with juice) moved to the 40% slab.
- These changes are effective 22nd September 2025 (except tobacco products, which will continue under the existing cess until government loan obligations are discharged).
GST 2.0 Rate Changes Across Key Sectors
| Sector | Item/Service | Earlier Rate | New Rate (from Sept 22, 2025) | Remarks/Impact |
|---|---|---|---|---|
| Appliances | ACs, Refrigerators, Washing Machines, Dishwashers, Large TVs | 28% | 18% | Lower consumer prices |
| Mobile Phones, Laptops | 18% | 18% | No change | |
| Automobiles | Petrol cars ≤1200cc, ≤4000mm length | 28% | 18% | Affordable small cars |
| Diesel cars ≤1500cc, ≤4000mm length | 28% | 18% | Affordable diesel segment | |
| Motorcycles ≤350cc | 28% | 18% | Price reduction | |
| Luxury cars (>1200cc petrol/>1500cc diesel, >4000mm length) | 28% + cess (~50%) | 40% | High-tax category, but lower than earlier cess regime | |
| Motorcycles >350cc, yachts, aircraft for personal use | 28% + cess | 40% | Classified under luxury/sin goods | |
| Healthcare | 33 lifesaving drugs, certain cancer/rare disease drugs | 12% / 5% | Nil | Tax-free |
| All other medicines | 12% | 5% | Cheaper medicines | |
| Medical equipment (thermometers, glucometers, bandages, surgical tools) | 18%/12% | 5% | Reduced costs for hospitals & patients | |
| Health & Life Insurance | 18% | Nil | Policies cheaper by 18% | |
| Education | Pre-school to Class 12, educational stationery, private tuition, vocational training | 12% / 18% | Nil | Fully exempt |
| Coaching for competitive exams, non-accredited online courses | 18% | 18% | No change | |
| Hospitality | Hotels below Rs 1,000/night | Exempt | Exempt | No change |
| Hotels Rs 1,001–Rs 7,500/night | 12% | 5% | Mid-range stays cheaper | |
| Hotels above Rs 7,500/night | 18% | 18% | No change | |
| Services | Salons, spas, gyms, wellness centers | 18% | 5% | Significant reduction |
| Cinema tickets ≤Rs 100 | 12% | 5% | More affordable | |
| Cinema tickets >Rs 100 | 18% | 18% | No change | |
| Luxury & Sin Goods | Pan masala, aerated waters, caffeinated drinks, carbonated fruit beverages, gambling platforms, luxury cars & high-end bikes | 28% + cess | 40% | Higher GST, replaces cess regime |
Implementation Timeline
- Effective Date: 22nd September 2025 (first day of Navratri).
- Tobacco Products: Will remain under 28% GST + cess until compensation cess liabilities are cleared (expected late 2025).
Economic Impact
- Consumers: Relief on appliances, automobiles, medicines, healthcare, and education.
- Businesses: Simplified compliance due to fewer slabs.
- Government Revenue: Higher tax on luxury and sin goods compensates for reductions on essentials.
- Industry Outlook: Lower tax burden expected to stimulate festive season demand and boost manufacturing growth.
Lets Break - Across Key Sectors
Appliances: Big Savings for Households
Electronic Goods Price Cuts
Household appliances have become significantly more affordable with GST rates reduced from 28% → 18% on:
- Air Conditioners
- Refrigerators
- Washing Machines
- Dishwashers
- LED/LCD TVs (above 32 inches)
- Monitors and large-screen televisions
Example:
A mid-range AC priced at Rs40,000 (before GST) earlier cost Rs51,200 with 28% tax. Now, it will cost Rs47,200 under 18% GST — a saving of Rs4,000.
Mobile Phones & Laptops
No change — they continue under the 18% GST bracket, keeping prices stable.
Automobiles: Relief for Mass Market, Higher Tax for Luxury
Winners: Small Cars & Two-Wheelers
Entry-level cars, motorcycles, and essential vehicles see a drop from 28% → 18%:
- Petrol cars ≤1200cc, ≤4000mm
- Diesel cars ≤1500cc, ≤4000mm
- Motorcycles ≤350cc
- Three-wheelers, buses, trucks, ambulances
Impact: Popular models like Maruti Swift, WagonR, Hyundai i20, Hero Splendor, Honda Shine, and Royal Enfield Classic 350 will become more affordable.
Losers: Luxury Vehicles
High-end vehicles now fall under the 40% GST slab:
- Cars above 1200cc (petrol) or 1500cc (diesel)
- Cars longer than 4000mm
- Motorcycles above 350cc
- Yachts, helicopters, and personal aircraft
Balance Point: Earlier, luxury SUVs were taxed at 28% + 22% cess (50%), but now face a flat 40% rate — making them cheaper than before but still in the high-tax bracket.
Healthcare: Affordable for All
Healthcare emerges as the biggest beneficiary of GST 2.0.
- Medicines:
- 36 life-saving drugs (cancer, rare diseases): 12%/5% → 0%
- All other medicines: 12% → 5%
- Medical Equipment:
- Thermometers, glucometers, diagnostic kits: 18%/12% → 5%
- Surgical/dental equipment and veterinary apparatus: 18% → 5%
- Wadding, gauze, bandages: 12% → 5%
- Health Insurance:
- Now completely exempt from GST.
- Consumers save 18% on premiums, making insurance more accessible.
Education: Stronger Exemptions for Learners
Completely Exempt (0% GST)
- Pre-school, primary & secondary education (recognized institutions)
- Educational stationery: notebooks, pencils, maps, globes (12% → 0%)
- Private tuition & coaching classes up to Class 12 (18% → 0%)
- Vocational training & skill development courses (18% → 0%)
Still Taxable at 18%
- Professional coaching for competitive exams (JEE, NEET, UPSC)
- Online courses from non-accredited platforms
This ensures affordability for school-level education while retaining tax on specialized/professional coaching.
Hospitality & Services: More Affordable
- Hotels:
- Rooms below Rs 1,000/night: Exempt
- Rs 1,001–Rs 7,500/night: 12% → 5%
- Above Rs 7,500/night: 18% (unchanged)
- Beauty & Wellness:
- Salons, spas, parlours: 18% → 5%
- Gyms & fitness centers: 18% → 5%
- Entertainment:
- Cinema tickets ≤ Rs100: 12% → 5%
- Cinema tickets >Rs100: 18%
Sin Goods & Luxury Items: 40% GST
The highest slab of 40% targets harmful and luxury products:
- Tobacco (cigarettes, gutka, pan masala)
- Aerated & sugary beverages
- Caffeinated energy drinks
- Online gambling platforms
- Luxury cars & high-end motorcycles
Note: Tobacco will move to the 40% slab only after cess obligations are cleared (expected by late 2025).
Implementation Timeline
- Effective Date: September 22, 2025 (first day of Navratri)
- Tobacco Products: Continue under 28% + cess until loans are repaid.
Economic Impact & Benefits
GST 2.0 aims to balance consumer relief, business simplicity, and fiscal stability:
- Consumer Savings: Everyday goods & services become cheaper.
- Business Ease: Only three tax slabs reduce compliance burden.
- Revenue Security: Luxury & sin goods sustain government earnings.
- Economic Boost: Lower appliance and auto prices may trigger festive demand and strengthen manufacturing.
Final Thoughts
GST 2.0 marks a historic milestone in India’s tax reforms. By rationalizing slabs and reducing the burden on essential goods while taxing luxuries higher, the government is striking a balance between social equity and economic growth.
As the festive season approaches, households can expect lower appliance and vehicle costs, while healthcare and education become more affordable and inclusive. Businesses too will benefit from a simplified structure, setting the stage for a new era in India’s GST journey.