by Umaima Reshi
SRINAGAR: At its 56th meeting, presided over by Finance Minister Nirmala Sitharaman, the GST Council approved the “Next-Gen GST Reforms,” ushering in a new phase for India’s indirect tax system. Set to take effect on September 22, 2025, the reforms will lower rates on essentials, simplify the tax code, and benefit individuals and companies alike. The changes aim to reduce living costs, support small businesses and farmers, and enhance India’s long-term economic growth.
A Simplified Structure
The Goods and Services Tax (GST), launched on July 1, 2017, was India’s most significant indirect tax reform since independence. It eliminated cascading taxes, simplified compliance, increased transparency, and created a unified national market by merging several central and state taxes into one system. Over eight years, rate adjustments, rationalisation, and digital processes strengthened GST as the backbone of India’s tax system.
At the heart of the new reform is simplification. The government reduced multiple slabs to just two rates: 5 per cent and 18 per cent. Previously, there were four tiers: 5, 12, 18, and 28 per cent. A higher flat rate of 40 per cent will now apply to luxury and harmful goods such as tobacco, pan masala, aerated drinks, yachts, and private planes. Necessities like staple foods, life-saving medicines, and school supplies will be either nil-rated or taxed at 5 per cent. Officials stated that this simplification would lower disputes, encourage compliance, and enhance transparency.
With a clearer two-tier structure, more equitable taxation, and digital filing for convenience and faster refunds, the Next-Gen GST reforms build on the original system’s success. They are designed to strengthen state revenues, empower MSMEs and manufacturers through smoother cash flows, benefit consumers by reducing prices of high-value and essential goods, and stimulate growth in manufacturing and consumption.
Relief for Households
Households are set to benefit substantially. Packaged foods such as namkeens, sauces, chocolates, and coffee will now attract only a 5 per cent GST, while Indian breads, paneer, and UHT milk are fully exempt. Bicycles and essential household items like toothpaste, shampoos, soaps, and tableware have moved to the lower bracket. Heavily taxed consumer durables such as air conditioners, dishwashers, and televisions over 32 inches will now face an 18 per cent tax instead of 28 per cent. These adjustments are expected to ease household budgets and improve affordability for middle-class families.
The reduction in GST on building materials is expected to invigorate the housing sector. Cement’s tax rate has dropped from 28 per cent to 18 per cent. Similarly, sand-lime, granite, and marble bricks will now attract a 5 per cent tax, down from 12 per cent. Other materials such as bamboo flooring, wooden pallets, and packaging cases will also be taxed at 5 per cent. These changes are expected to boost real estate demand, lower construction costs for homes and infrastructure, and generate employment in construction and related sectors.
Simplified classification and reduced rates are set to benefit the automobile industry. Small cars and two-wheelers with engines up to 350cc will now incur an 18 per cent tax instead of 28 per cent. Tax rates on buses, trucks, three-wheelers, and auto parts have been cut from 28 per cent to 18 per cent. Industry experts predict these changes will enhance India’s global competitiveness in auto exports and manufacturing while stimulating domestic demand.
Farmers will see reduced costs due to lower taxes on equipment and inputs. Tractors now attract a 5 per cent tax instead of 12 per cent, and tires and spare parts will also be taxed at 5 per cent rather than 18 per cent. Poultry and beekeeping equipment, harvesters, threshers, sprinklers, and drip irrigation systems are now subject to a 5 per cent rate. Rates for natural menthol and biopesticides have fallen from 12 to 5 per cent. These adjustments are expected to promote environmentally sustainable farming, reduce dependence on imported fertilisers, and boost agricultural self-reliance.
The services industry, particularly the hospitality and wellness sectors, will benefit from the reforms. Hotel stays up to Rs 7,500 per night will now attract a 5 per cent tax instead of 12 per cent. Yoga centres, salons, barbershops, and gyms will be taxed at 5 per cent rather than 18 per cent. Analysts expect these changes will lower costs for consumers, encourage wellness, and revitalise the service sector after the pandemic and inflationary pressures.
Educational resources will now be more affordable. Items such as sharpeners, pencils, crayons, erasers, and exercise books are exempt from GST. Trays, school cartons, and geometry boxes have moved from 12 per cent to 5 per cent. The government expects these adjustments to reduce the cost of education and alleviate financial pressure on families with school-going children.
The government has addressed inverted duty structures that caused cost imbalances in textiles and handicrafts. GST on man-made yarn has been cut from 12 to 5 per cent, and man-made fibre from 18 to 5 per cent. Idols, statues, paintings, sculptures, and other handcrafted items will attract a 5 per cent tax, as will toys made from textile, metal, and wood. These measures are expected to protect artisan livelihoods, foster rural development, and support India’s cultural industries.
One of the most socially significant reforms affects healthcare and insurance. Thirty-three life-saving drugs and diagnostic kits, previously taxed at 12 per cent, are now exempt. Other medicines, including those from Ayurveda, Unani, and Homoeopathy, will now be subject to a 5 per cent tax. Medical oxygen, thermometers, surgical instruments, and various medical, dental, and veterinary devices are included in the 5 per cent bracket. Spectacles and corrective lenses will face a reduced tax rate of 5 per cent, down from 28 per cent. Life and health insurance premiums are now fully exempt from GST. Officials stated that these changes will make healthcare more affordable and support the government’s goal of “Insurance for All” by 2047.
Industry Reactions
Industry leaders have welcomed the reforms. Trade expert Dileep Baid described the reduction in handicraft taxes as a “lifeline” for artisans, preserving jobs and boosting the domestic market. Himanshu Baid, Managing Director of PolyMedicure, highlighted that lower taxes on medical supplies and zero GST on insurance would improve accessibility and consumption. Hemant Jain of PHDCCI referred to the reforms as a “major incentive for the common man” and a boost for ease of doing business. Ravi Patodia from the Carpet Export Council noted that reduced taxes on everyday consumption items would ease inflationary pressures on households.
A Broader Impact
Since its inception on July 1, 2017, GST has restructured India’s tax system by combining 13 cesses and 17 taxes into one. From 66.5 lakh taxpayers in 2017, the number rose to 1.51 crore by 2025. Gross GST collections doubled in four years, reaching Rs 22.08 lakh crore in the fiscal year 2024–2025. Monthly collections increased from Rs 82,000 crore in 2017–18 to Rs 2.04 lakh crore. These figures demonstrate GST’s role in driving growth, promoting transparency, and broadening compliance.
The Next-Gen GST reforms mark a major step towards simplifying taxation, promoting equity, and making the system more citizen-friendly. A cycle of lower prices, increased demand, and steady revenue growth is expected to follow, reinforcing India’s commitment to ensuring citizen welfare and facilitating ease of business.
