India has rolled out a sweeping overhaul of its indirect tax system starting September 22, coinciding with the first day of Navratri. Branded as a “GST Savings Festival” by Prime Minister Narendra Modi, the new Goods and Services Tax structure—GST 2.0—seeks to reduce household expenses and spur demand, particularly among the middle class and the poor.
On Sunday, the Prime Minister hailed the move, calling it a “new chapter” in India’s tax regime. He claimed the reforms could generate overall savings worth Rs 2.5 lakh crore for citizens. The changes, he said, would make everyday purchases easier and cheaper.
From Four Slabs to Two, Plus One for Luxury
The earlier GST system was spread across four slabs of 5, 12, 18, and 28 per cent, which had led to widespread confusion over classification. The new system simplifies the structure into two broad slabs:
Five per cent for essentials and daily-use goods, including food grains, medicines, basic dairy products, and educational materials.
Eighteen per cent for most other goods and services such as manufacturing, consumer durables, transport, and standard services.
Additionally, a new 40 per cent slab has been created exclusively for sin and luxury goods. This includes tobacco, pan masala, aerated drinks, premium vehicles, casinos, online gaming, and horse racing.
What Becomes Cheaper
The changes mean 375 items are set to become more affordable from today. Staples such as milk, chapati, paratha, and parotta are fully exempt from GST. Butter, ghee, paneer, and cheese have been placed in the five per cent category. Popular packaged foods including pasta, biscuits, chocolates, cornflakes, namkeens, and bhujia will also attract five per cent tax.
Dry fruits such as almonds, cashews, pistachios, and dates—earlier taxed at 12 per cent—will now be charged five per cent. Refined sugar, confectionery, and even ice creams see a steep drop from 18 per cent to five per cent. Daily-use items such as hair oil, shampoos, toothpaste, and dental floss are now in the five per cent bracket.
Life-saving drugs, medical devices, and books are either tax-free or taxed at five per cent. In the electronics category, items like washing machines, dishwashers, and televisions shift from 28 per cent to 18 per cent. Fertilisers, seeds, and construction inputs also move down to five per cent.
For vehicles, small petrol cars under 1,200cc and diesel cars under 1,500cc will now attract 18 per cent GST instead of 28 per cent, with cess eliminated. Hotels charging under Rs 7,500 per room will also fall in the five per cent category. Economy air tickets will cost less with GST reduced to five per cent.
Even services in personal care and wellness have been brought down. Barbers, salons, fitness centres, health clubs, and yoga classes, earlier taxed at 18 per cent, will now attract five per cent GST.
What Gets Costlier
The relief comes with a counterbalance. Cigarettes, gutkha, pan masala, and sweetened aerated drinks have been moved to the 40 per cent slab. Premium cars, luxury bikes, and large vehicles also attract the higher rate. Casinos, horse racing, lotteries, and IPL tickets are subject to 40 per cent GST.
Clothing above Rs 2,500 will see a higher 18 per cent GST, compared to 12 per cent earlier.
The Savings Impact
Experts estimate significant gains for households. Groceries and household staples shifting to lower tax brackets are expected to deliver annual savings of about Rs 3,000 or more for middle-class families.
Insurance has also seen a major shift. GST on life and health policies has been abolished. Previously taxed at 18 per cent, a family could save up to Rs 5,400 annually on premiums, according to estimates.
Electronic appliances are another area of visible benefit. Washing machines, ACs, and large TVs now attract 18 per cent GST instead of 28 per cent. Depending on the brand, consumers can save anywhere from Rs 2,000 to Rs 10,000. For instance, a Whirlpool AC is expected to be cheaper by Rs 4,500–5,250, while a dishwasher may see savings of Rs 3,200–4,300.
The automobile sector is likely to record the biggest impact. A small car such as the Maruti Alto K10 will now be cheaper by about Rs 1.07 lakh. For a car priced around Rs 5 lakh, GST cuts could shave off Rs 40,000–50,000, with additional savings on road tax and insurance adding another Rs 6,000–7,000.
Consumption Push Ahead of Festive Season
While the overall impact of GST 2.0 will become clearer in the coming months, the timing of the reform is crucial. Rolling out ahead of the festive season, the government expects households to channel these savings into higher consumption. For now, GST 2.0 promises both relief and a spending boost at a time when demand has been under pressure.