India’s GST Overhaul: What You Need to Know
Thank you for reading this post, don't forget to subscribe!India’s Goods and Services Tax (GST) system is undergoing its most significant change since 2017. Starting September 22, 2025, the country will shift from a complex four-slab structure to a simplified, two-tier system, aiming to make the tax regime more consumer-friendly and easier for businesses to navigate.
New GST Rate Structure
The new framework simplifies the tax system into three main categories:
- 5% (Merit Rate): This rate applies to a wide range of essential goods and services, including many daily necessities and medicines.
- 18% (Standard Rate): This will be the most common rate, covering a majority of goods and services.
- 40% (Special Rate): A new, higher slab for ultra-luxury and “sin” goods like high-end cars and tobacco products.
The existing 12% and 28% slabs will be eliminated, with items from these categories being moved to the new 5% or 18% rates.
Key Impacts of the Change
For Consumers:
- Lower Prices: The reduction in GST rates on items like consumer durables (TVs, ACs, refrigerators), automobiles, and many household goods is expected to make them more affordable.
- Boost to Spending: Finance Minister Nirmala Sitharaman stated that these reforms will put an estimated ₹2 lakh crore back into people’s hands, which is expected to boost domestic consumption.
- Affordable Insurance: There’s a potential for lower premiums on health and life insurance policies if the GST Council recommends a rate reduction for these sectors.
For Businesses:
- Simplified Compliance: The streamlined rate structure is designed to reduce the complexity and cost of tax compliance, particularly for startups and small and medium enterprises (SMEs).
- No Re-labelling: The government has given a major relief to manufacturers and retailers by allowing them to use existing stock with old labels until March 31, 2026. This prevents the need for a costly re-labelling process.
- Increased Demand: Companies like Haier Appliances are anticipating a significant growth in sales this festive season due to the lower prices on consumer electronics.
Potential Challenges
- Consumer Skepticism: A survey by LocalCircles found that only 18% of consumers felt they benefited from previous GST rate cuts, with many believing the savings were not passed on to them.
- State Revenue Concerns: Telangana’s Chief Minister has requested that the central government continue compensating states for an additional five years, citing potential revenue losses from the tax rate reductions.
Despite these concerns, experts like the ratings firm Crisil believe the government’s estimated short-term revenue loss of ₹48,000 crore will not pose a significant fiscal burden, especially when compared to the total annual GST collection of over ₹10 lakh crore.
