In a major tax overhaul, the GST Council has approved a sweeping rationalisation of India’s Goods and Services Tax regime, effective September 22, 2025. The Council has decided to discontinue the 12% and 28% slabs, replacing them with a two-rate structure of 5% and 18%, while imposing a 40% GST on sin and luxury items.
Key decisions of the GST Council
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Two-slab structure: All goods and services will now fall under either 5% or 18% GST, ending the multi-slab system.
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12% & 28% removed: Items previously under these slabs will be reclassified into the new two-slab structure.
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Sin & luxury goods at 40%: Cigarettes, pan masala, luxury cars, online gaming, and aerated drinks will now attract a uniform 40% tax.
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Revenue impact: The rejig is estimated to cost the exchequer ₹99,000 crore (INR 990 billion) in foregone revenues. However, the higher levy on sin and luxury items is expected to bring in ₹45,000 crore (INR 450 billion).
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Consensus achieved: The Council stated that there is broad consensus among states on the need for GST simplification and rationalisation.
What this means for consumers and businesses
The move is expected to simplify GST compliance for businesses and create a more transparent tax system. For consumers, the changes could lead to lower prices on certain goods shifting from the 12% and 28% slabs to the new structure, while prices of sin and luxury goods are set to rise significantly.
This decision marks one of the most significant reforms in GST since its launch in 2017 and will come into force on September 22, 2025.
