Next Gen GST Reforms: FM Nirmala Sitharaman Announced New GST Rates List 2025

Next Gen GST Reforms 2025 simplify India’s tax structure with two slabs, lower rates on essentials, and GST exemptions on insurance and medicines to boost growth.

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In a revolutionary step that represents one of the biggest reworks in eight years, Finance Minister Nirmala Sitharaman announced the Next-Gen GST Reforms at the 56th GST Council meeting on 3 September 2025. These reforms are set to rationalise India’s round-the-year indirect tax structure, ease compliance, and bring much-needed relief to consumers and businesses alike by trimming the present four-rate GST regime into two basic slabs.

FM Nirmala Sitharaman Announced New GST Rates

In a major redesign of India’s oblique taxation regime, Finance Minister Nirmala Sitharaman made sweeping Goods and Services Tax (GST) rate reductions, starting from September 22, 2025. The GST Council has cleared a new two-tier structure of 5% and 18%, replacing the earlier four tiers. A new 40% “special rate” has also been added to sin items and luxury goods.

These changes are aimed to gain the benefit of the general consumer and enhancing domestic consumption. Most common household commodities, such as hair oil, soap, shampoo, and kitchen utensils, have had their GST rate cut down from 18% or 12% to a new 5% slab. Basic foodstuffs like UHT milk, paneer, and Indian breads like chapati and roti will have a nil GST rate, making them fully tax-free.

Effective Date for GST 2.0 Plan

These reforms under the “GST 2.0” plan will come into force from 22 September 2025, during the Navratri festival, except for a few sin goods which will be phased in later.

The government expects the combined revenue loss to be around ₹48,000 crore. Experts put it lower at reduced inflationary pressure and increased consumption, with the potential for a rise of 0.5 percentage points in GDP growth.

Next Gen GST Reforms: Two-Tier Tax Structure

The GST Council has voted unanimously in favour of a streamlined tax system consisting:

5% slab: Aims at mass consumer items—kitchen basics, food, and cosmetics.
18% slab: Encompasses a broad range of products, including appliances and cars.
40% “sin/luxury” rate: Assesses luxury items and harmful products like high-value cars, tobacco products, and soft drinks.

This redesign abolishes the earlier 12% and 28% slabs completely.

New GST Rates List 2025

Essentials now more Affordable (5%): Hair oil, soaps, shampoo, toothpaste, bikes, namkeen, pasta, chocolates, coffee, butter, ghee, cereals, and paneer (now nil GST)
Relief in Healthcare: 33 lifesaving medicines exempted; other crucial medicines from 5% to nil
Insurance Advantage: All individual life and health insurance policies are now GST-free.
Automobiles and appliances: Small vehicles & motorbikes (≤350cc) brought down to 18%; EVs are kept at 5%; TVs, ACs, and home appliances at 18% tax
Construction Materials: The proportion of cement decreases from 28% to 18%.

The Next-Gen GST reforms by FM Nirmala Sitharaman usher in a revolutionary change in India’s indirect tax environment—powered by ease, consumer benefit, and economic strength. By easing the tax burden on everyday items and regularising the framework, the action demonstrates India’s commitment to promoting inclusive growth in a rapidly changing global context and strengthening local economic foundations.