The Goods and Services Tax Council has announced the New GST Rates 2025, which will take effect from September 22. GST is now converted to a two-rate structure. Many food items will see a reduction in GST Rates, while sin goods like tobacco and Gutkha will see a considerable increase in the GST Rates.
Key Points
- India’s GST was simplified to a two-rate structure of 5% and 18%, replacing the previous four slabs.
- An additional 40% tax was introduced on “super luxury” and “sin” goods.
What is GST?
GST, which is also known as Goods and Services Tax, is a type of Indirect Tax. This GST has replaced many taxes in India, including excise duty, VAT, Service Tax, cess, surcharge, Additional Duties of Excise, and Additional Duties of Customs. The Goods and Services Tax Act was passed in the Parliament on 29 March 2017 and came into effect on 01st July 2017.
List of Services that GST Subsumes
- Entry Tax
- Purchase Tax
- Luxury Tax
- State VAT
- Central Sales Tax
- Entertainment Tax
- Taxes on Advertisements
- State Cess and Surcharges
- Taxes on Gambling and Lottery
History of GST
GST was first implemented in France as a tax regime in 1954. Then, the Goods and Services Tax was implemented in several countries, including Australia, Canada, the United Kingdom, and Vietnam.
In India, a committee, also known as a task force, was established by the then Prime Minister, Atal Bihari Vajpayee, to formulate the GST. This task force was headed by Vijay L. Kelkhar, financial ministry advisor. He concluded that the GST could significantly improve India’s tax structure. In 2006, the finance ministry proposed introducing the GST in India from 2010. But the Constitution Amendment Bill to facilitate the introduction of the GST Law was introduced in 2011. Then, four supplementary bills were introduced in the Lok Sabha and approved by the Cabinet. Finally, the GST came into force in India on 01st July 2017.
New GST Rates List 2025
| Slab | Applies To | Examples & Highlights |
|---|---|---|
| Nil / 0% | Essential staples or basic items | UHT (ultra-high temperature) milk, packaged paneer (chhena), pizza bread, khakra, chapati/roti. |
| 5% (Merit rate) | Daily essentials, healthcare, agriculture inputs | Butter, ghee, cheese, condensed milk; noodles, jams; soaps, toothpaste, hair oil; medical devices, diagnostics; seeds, fertilizers |
| 18% (Standard rate) | Most consumer durables & services | TVs, air-conditioners, small cars, cement, motorcycles (≤350 cc), electric vehicles, salon and gym services |
| 40% (Demerit rate) | Luxury and sin goods | Daily essentials, healthcare, and agriculture inputs |
The Government has also cut GST Rates on Individual Life and Health Insurance policies, as well as a few life-saving drugs.
One-Line Summary
- Simplified Structure: Two-tier System (i.e., 5% and 18%) introduced, replacing the old four-tier system.
- Luxury and Sin Goods: Super Luxury and Sin Goods attract 40% GST.
- Essentials Cheaper: The essential Products are becoming cheaper, such as toothpaste, bread, and packaged foods, which are now taxed at 5% or not at all.
- Healthcare Relief: Life-saving drugs and medical devices cut to 0% or 5%, with health and life insurance premiums exempt.
- Middle-Class Gains: Two-wheelers, Small Cars, TVs, ACs, and cement. Shifted from 28% to 18%.
- Farm-Support: Tractors, Machinery, and Bio-Pesticides reduced from 12-18% to 5%, easing farmer costs.
- Service Boost: Hotels (under $7,500/day), Gyms, Salons, and yoga services to cut to 5%, aiding tourism and wellness.
- Education Relief: Notebooks, Pencils, Crayons, erasers, and charts are made tax-free.
- This is the 56th GST Council meeting held after the implementation of Goods and Services Tax.
Quiz
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