New GST Rates: What Items Will Get Cheaper in India – Here is the List

The Goods and Services Tax (GST) stands as one of India’s most significant fiscal reforms since independence, fundamentally transforming the country’s indirect taxation landscape. Implemented on July 1, 2017, GST unified over a dozen state and central levies into a single, comprehensive tax system under the principle of “One Nation, One Tax, One Market”. This revolutionary reform replaced multiple indirect taxes including Value Added Tax (VAT), excise duty, and service tax, creating a streamlined framework that has enhanced tax compliance and reduced business complexities.

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In a landmark Independence Day announcement on August 15, 2025, Prime Minister Narendra Modi unveiled the next generation of GST reforms, promising substantial relief for Indian consumers through a comprehensive restructuring of tax slabs. These upcoming changes, dubbed as the government’s “Diwali gift” to citizens, are expected to be implemented by October 2025, marking the most significant overhaul of the GST system since its inception. The proposed reforms aim to simplify the complex four-tier tax structure into a more consumer-friendly framework that will directly reduce prices across a wide range of everyday goods and services.

Overview of New GST Rates.

The Centre has proposed a revolutionary two-slab GST structure featuring primary rates of 5% and 18%, effectively eliminating the current 12% and 28% brackets that have created classification complexities over the past eight years. According to government sources, approximately 99% of items currently taxed at 12% will move to the lower 5% slab, while 90% of goods in the existing 28% category will shift to the 18% bracket.

Key Changes in the Proposed Structure.

The new framework introduces three distinct categories:

• Merit goods at 5% – covering essential and daily-use items
• Standard goods at 18% – encompassing most consumer products and services
• Demerit goods at 40% – limited to luxury and sin goods like tobacco products

Special provisions will maintain the 40% tax rate on only seven specific items, including tobacco and tobacco products such as gutka and pan masala, with the overall tax incidence on tobacco remaining at the current 88%. Online gaming is also expected to be classified under the demerit category and attract the highest tax rate.

Major Relief on Big-Ticket Items: Consumers can look forward to substantial savings on high-value goods, with proposals to move the following from the highest 28% tax slab down to 18%:

• Small Cars.
• Air Conditioners.
• Televisions.

Reduction in Essential Services: A significant cut is anticipated for financial services, making them more accessible:

• Insurance Premiums: Proposed to be slashed from 18% to as low as 5%, or potentially made tax-free (nil).

More Affordable Groceries and Daily Essentials: A wide range of everyday food and household items are expected to see tax reductions:

• Items proposed to move to the 5% GST Slab:
• Snacks: Bhujia, Namkeen, and Potato Chips.
• Pantry Staples: Packaged Juices, Pasta, and Noodles.
• Condiments: Ketchup, Jam, and Mayonnaise.
• Dairy Products: Butter, Ghee, Cheese, Condensed Milk, and Milk-based Beverages.

Items proposed to become Tax-Free (from 5% to nil):

• Personal Care: Tooth Powder
• Other select daily-use items

Government’s Rationale Behind the Changes

The Finance Ministry’s proposal, as presented to the Group of Ministers (GoM), is anchored on three foundational pillars:

• Pillar 1: Structural Reforms – Simplifying the tax framework to reduce classification disputes and administrative burden
• Pillar 2: Rate Rationalization – Reducing taxes on everyday items and aspirational goods to boost consumption
• Pillar 3: Ease of Living – Implementing tech-driven solutions for faster registrations, pre-filled returns, and automated refunds

This comprehensive restructuring addresses long-standing issues including inverted duty structures in sectors like textiles and manufacturing, where input tax credits often exceeded output tax liabilities. The government projects that these reforms will strengthen key economic sectors, stimulate economic activity, and enable sectoral expansion while maintaining revenue sustainability.

Detailed List of Cheaper Items

The upcoming GST reforms will significantly reduce prices across multiple categories, providing tangible relief to Indian households. Based on government announcements and expert analyses, here’s a comprehensive breakdown of items that will become more affordable:

Essential Goods and Personal Care Products.

Personal Care Items moving from 12% to 5%:

• Toothpaste and tooth powder
• Soaps and detergents
• Hair oil and shampoo
• Personal hygiene products

Healthcare Products experiencing rate reductions:

• Most vaccines (12% to 5%)
• HIV/TB diagnostic kits (12% to 5%)
• Ayurvedic medicines (12% to 5%)

The reduction in healthcare product taxation aligns with the government’s vision of making medical services more accessible to the common man, particularly benefiting rural and low-income populations who rely heavily on traditional medicines and preventive healthcare.

Food and FMCG Products.

Processed Food Items transitioning from 12% to 5%:

• Bhujia, namkeen, and potato chips
• Ketchup, jam, and mayonnaise
• Packaged fruit juices and soft drink concentrates
• Pasta and noodles
• Butter and condensed milk
• Frozen vegetables and processed snacks
• Milk-based beverages and dairy products

These changes will particularly benefit middle-class families, as processed and packaged foods constitute a significant portion of urban household spending. The government estimates that these reductions could lower monthly grocery bills by 7-10% for average families.

Consumer Electronics and Appliances.

Electronics and Gadgets moving from 12% to 5%:

• Mobile phones and smartphones
• Computers and laptops
• Sewing machines
• Pressure cookers and kitchen appliances
• Non-electric water filters
• Exercise equipment

Major Home Appliances shifting from 28% to 18%:

• Air conditioners and cooling systems
• Refrigerators and deep freezers
• Television sets and entertainment systems
• Washing machines and dishwashers
• Water heaters and geysers
• Vacuum cleaners and home automation devices

The reduction in electronics taxation is expected to boost digital adoption and support the government’s Digital India initiative, making technology more accessible to students, professionals, and small businesses across the country.

Automobiles and Transportation.

Automotive Sector experiencing significant relief:

• Small cars moving from 28% to 18% – potentially saving consumers ₹60,000 to ₹1,00,000 on vehicle purchases
• Two-wheelers also expected to benefit from the 28% to 18% reduction
• Commercial vehicles including trucks and buses
• Tractors and agricultural machinery potentially moving from 12% to 5%

Industry experts predict that automobile sector could see a 15-20% increase in demand following these tax reductions, particularly benefiting manufacturers like Maruti Suzuki, Bajaj Auto, Hero MotoCorp, and TVS Motor.

Building Materials and Construction.

Construction Materials getting cheaper:

• Cement and ready-mix concrete (28% to 18%)
• Pre-fabricated building components
• Glazed tiles and ceramic products
• Solar water heaters and renewable energy equipment

The reduction in construction material costs is expected to make housing more affordable and boost the real estate sector, particularly benefiting affordable housing projects under government schemes.

Services Sector.

Service Categories experiencing rate reductions:

• Insurance premiums potentially moving from 18% to 5% or becoming completely exempt
• Certain transportation services
• Educational and training services (maintaining exemption status)
• Healthcare services (continuing zero taxation)

The reduction in insurance taxation could significantly increase insurance penetration in India, making life and health insurance more affordable for millions of Indians who currently remain uninsured.

Implications for Consumers and Businesses.

Consumer Benefits and Purchasing Power Enhancement.

The proposed GST reforms are expected to directly increase household disposable income through reduced taxation on essential goods. Analysis suggests that an average Indian family spending ₹10,000 monthly on items moving from 12% to 5% could save approximately ₹700 per month or ₹8,400 annually. For big-ticket purchases like automobiles, the savings are even more substantial – a small car worth ₹6,00,000 could cost ₹60,000 less in GST under the new structure.

Inflationary Impact is anticipated to be positive, with economists projecting that the reformed GST structure could reduce the Consumer Price Index (CPI) by 0.5-1%. This reduction in indirect taxation on essential goods will particularly benefit lower and middle-income households, where these items constitute a larger share of total expenditure.

The consumption-led growth model that these reforms aim to stimulate could create a virtuous cycle – lower prices leading to increased demand, which in turn drives production, employment, and economic activity. This is particularly crucial for India’s economy, where consumption accounts for approximately 60% of GDP.

Business Impact and Operational Changes.

Compliance Simplification represents a major benefit for businesses, especially small and medium enterprises (SMEs). The reduction from four tax slabs to two main categories will eliminate classification disputes that have plagued businesses since GST implementation. Companies will spend less time and resources on tax compliance, allowing them to focus on core business activities.

Pricing Strategy Revisions will be necessary across industries. Businesses will need to adjust their pricing models, update inventory management systems, and retrain staff on the new tax structure. However, this one-time adjustment cost is expected to be offset by long-term compliance benefits and increased sales volumes.

Supply Chain Optimization will continue to benefit from GST’s unified structure. The further simplification is expected to reduce logistics costs by an additional 2-3%, particularly benefiting manufacturing and e-commerce sectors. Interstate movement of goods will become even more seamless, supporting the ‘One Nation, One Market’ vision.

Sectoral Impacts vary significantly:

• FMCG companies are expected to see increased volumes due to lower prices on packaged goods
• Automobile manufacturers could experience 15-20% demand growth, particularly for small cars and two-wheelers
• Consumer electronics sector may witness accelerated adoption of technology products
• Insurance companies could see dramatic increases in policy adoption if premiums become exempt or move to 5%

Government’s Objectives and Future Outlook.

Strategic Objectives Behind GST Reforms.

The Modi government’s GST 2.0 initiative is designed to achieve multiple strategic objectives that align with India’s broader economic vision. The primary goal is to boost domestic consumption, which has shown signs of moderation in recent quarters, particularly in rural areas and among middle-income households. By reducing taxation on everyday goods and aspirational products like automobiles and electronics, the government aims to stimulate demand and reinvigorate economic growth.

Formalization of the economy continues to be a key objective. The simplified two-slab structure will encourage more businesses to join the formal economy, as compliance becomes easier and less burdensome. This expansion of the tax base will ultimately lead to higher revenue collections despite lower tax rates on individual items, following the principle of “lower rates, higher compliance.

The reforms also target export competitiveness by addressing inverted duty structures that have handicapped Indian manufacturers in global markets. Sectors like textiles, footwear, and processed foods will benefit from rationalized input tax credits, making Indian products more competitive internationally.

Economic Strategy and Policy Integration.

These GST reforms are integral to India’s broader economic strategy of achieving sustainable high growth while maintaining fiscal discipline. The government’s approach reflects lessons learned from eight years of GST implementation, incorporating feedback from businesses, consumers, and state governments.

Revenue sustainability remains a critical consideration. While initial projections suggest a revenue impact of ₹1.74 lakh crore due to rate reductions, the government expects this to be offset by increased compliance, higher consumption, and economic growth. The multiplier effect of increased consumer spending is anticipated to generate additional economic activity that will ultimately benefit government revenues through direct taxes and increased economic formalization.

The reforms also support India’s demographic dividend strategy. With a young population increasingly aspirational for consumer goods, electronics, and mobility solutions, the reduced GST rates on these categories will boost demand among the key demographic driving India’s consumption growth.

Future Outlook and Implementation Timeline.

The GST Council is expected to meet in September 2025 to finalize the recommendations from the Group of Ministers, with implementation planned by Diwali 2025. This timeline provides businesses sufficient opportunity to prepare for the transition while ensuring that consumers receive the promised “Diwali gift.”

Technology Integration will play a crucial role in the smooth implementation of GST 2.0. The government plans to introduce automated refund systems, pre-filled returns, and AI-driven compliance monitoring to make the new system more efficient than the current structure. These technological enhancements will reduce compliance costs and improve tax administration effectiveness.

State Government Consensus remains crucial for successful implementation. Since GST revenues are shared between the Centre and states, the government is working to build broad-based consensus through the principle of cooperative federalism. States’ concerns about revenue impact are being addressed through detailed financial modeling and transitional support mechanisms.

Looking ahead, experts expect that GST collections could reach ₹25-30 lakh crore annually within three to five years of the new structure’s implementation, driven by higher compliance, increased consumption, and economic growth. This would represent a 25-50% increase from current collection levels, demonstrating the reform’s potential for long-term fiscal sustainability.

The success of GST 2.0 could also pave the way for further tax system modernization, including potential integration with direct tax systems and enhanced use of artificial intelligence for tax administration. India’s GST experience is being closely watched globally as a model for developing economies seeking to modernize their tax systems while maintaining growth momentum.

Conclusion.

The upcoming GST reforms represent a transformative moment for India’s tax system and economy, promising to deliver tangible benefits to consumers while strengthening the foundation for sustainable economic growth. The proposed simplification from four tax slabs to two main categories – 5% and 18% – addresses years of complexity and classification disputes that have burdened businesses and consumers alike.

For Indian consumers, these changes mean immediate relief in household budgets through reduced prices on essential goods, personal care products, food items, electronics, and automobiles. The potential annual savings of ₹8,400 for average families, and ₹60,000 on small car purchases, will significantly enhance purchasing power and improve quality of life. The reforms particularly benefit middle and lower-income households, where these goods constitute a larger share of total expenditure.

For businesses, the simplified structure promises easier compliance, reduced classification disputes, and lower administrative costs. The elimination of inverted duty structures will enhance export competitiveness, while the overall reduction in tax burden is expected to stimulate demand across sectors. Industries from FMCG to automobiles are poised to benefit from increased consumer demand and simplified operations.

For the economy, GST 2.0 aligns with India’s vision of becoming a consumption-driven, formalized economy. The reforms support key government initiatives including Digital India, affordable healthcare, and sustainable growth. By making essential goods more affordable while maintaining fiscal discipline, these changes create a foundation for sustained economic expansion.

The implementation timeline of Diwali 2025 provides adequate preparation time for all stakeholders while delivering the promised relief to citizens during the festive season. As the GST Council finalizes these reforms in September 2025, India stands on the cusp of its most significant tax system modernization since GST’s original implementation.

Citizens should stay informed about these developments through official channels and prepare for the positive impact these changes will have on their daily lives. The success of GST 2.0 will not only benefit current consumers but also establish India as a global leader in tax system innovation and economic reform.

References:

For the most accurate and up-to-date information on GST rates and regulations, readers are encouraged to consult official government sources.

1. Goods and Services Tax Council.
2. Ministry of Finance, Government of India.
3. Official GST Portal.
4. Press Information Bureau (PIB).

Disclaimer: The information provided in this article is based on recent government announcements and expert analysis as of August 2025. The final GST rates, item classifications, and implementation details are subject to change based on the final decisions of the GST Council. Readers are advised to consult official government notifications for the most accurate and up-to-date information.

C.K. Gupta

Hello, I am C.K. Gupta Founder of Taxgst.in, a seasoned finance professional with a Master of Commerce degree and over 20 years of experience in accounting and finance. My extensive career has been dedicated to mastering the intricacies of financial management, tax consultancy, and strategic planning. Throughout my professional journey, I have honed my skills in financial analysis, tax planning, and compliance, ensuring that all practices adhere to the latest financial regulations. My expertise also extends to auditing, where I focus on maintaining accuracy and integrity in financial reporting. I am passionate about using my knowledge to provide insightful and reliable financial advice, helping businesses optimize their financial strategies and achieve their economic goals. At Taxgst.in, I aim to share valuable insights that assist our readers in navigating the complex world of taxes and finance with ease.