Finance Minister of India, Nirmala Sitharaman has announced that the GST Council had decided to move to a two-tier rate structure. Effective from September 22, 2025, the GST structure will have two major slabs of taxes: 5 per cent and 18 per cent. Finance Minister said that life and health insurance policy premiums will no longer attract any GST. Sin goods such as tobacco and tobacco-related products such as cigarettes have been slapped with a 40 per cent levy. The detailed summary of the new GST Updates:
New Two-Tier GST Structure
- 5% – Essentials: Basic necessities like food, medicines, and educational services are kept affordable with a lower tax rate.
- 18% – Standard Goods & Services: Most other goods and services fall under this standard rate, simplifying compliance.
- 40% – Luxury & Sin Goods (New Slab): High-end items like luxury cars, yachts, etc. are taxed heavily to generate revenue and sin goods like tobacco, aerated drinks, etc. are also put under higher slabs to discourage consumption.
Major Changes
- Insurance (Health & Life) – GST-exempt: Removing GST on insurance makes policies more affordable, promoting wider coverage and financial protection.
- Consumer Goods – From 28% to 18%: Goods like air conditioners, TVs, and small vehicles are now cheaper, aiming to boost middle-class consumption.
- Hotels & Restaurants – Reduced to 5%: Lower GST on food and budget accommodation supports tourism and everyday dining.
- Air Travel – Economy at 5%, Business Class at 12%: Business class travel becomes slightly more affordable, while economy fares remain unchanged.
- Agricultural Inputs & School Supplies – 5% or Exempted: Cheaper tools for farmers and lower costs for students help rural and educational development.
Impact
- Inflation may drop by 1.1%: Lower taxes on essentials and consumer goods can ease overall price pressure on households.
- Boost in demand & business ease: Simplified structure and lower rates aim to drive consumption and reduce compliance burden on businesses.
Paras Sharma (Adv.)
(BA.LLB, LLM)