Government Notifies Sweeping GST Reforms, New Rates Effective September 22
The central government has notified new Goods and Services Tax (GST) rates, marking the largest overhaul since its 2017 launch. The reform streamlines the system into two main slabs of 5% and 18%, with a 40% rate on luxury and sin goods. Items previously taxed at 12% and 28% will largely move to the 5% and 18% brackets, respectively. The changes, effective September 22, are expected to reduce the tax burden on households and inject ₹2 lakh crore into the economy.
Unpacked:
Everyday essentials like soaps, shampoos, toothbrushes, packaged foods, and household items move to 5%, while TVs, ACs, and dishwashers drop from 28% to 18%. Luxury and sin goods such as tobacco, pan masala, aerated drinks, and high-end cars will be taxed at 40%.
Households are expected to benefit through lower prices on daily essentials and packaged foods, with several items moving to lower tax brackets or even being exempt. This should reduce cost of living and increase disposable income.
The 40% GST rate targets goods considered harmful (sin goods) or non-essential (luxury items), such as tobacco, aerated drinks, and high-end vehicles, aiming to discourage their consumption and ensure that revenue loss from lower rates elsewhere is compensated.
Businesses must update pricing and compliance systems, including adjusting MRPs on unsold stock and revising accounting processes. However, the government has simplified filing and allowed a transition period for MRP updates until December 2025 to ease the shift.