India’s GST 2.0: A Complete Guide to the 2025 Tax Reforms

On September 22, 2025, India introduced a significant overhaul of its Goods and Services Tax (GST) system, known as GST 2.0. This reform aims to simplify the tax structure, reduce the cost of living, and stimulate economic growth. Here's everything you need to know about the new GST rates and their impact.

GST 2.0: Simplified Tax Structure

The GST Council has streamlined the tax system into three primary slabs:

• 5%: Applicable to essential goods and services.

• ⁠18%: Standard rate for most goods and services.

• 40%: Luxury and sin goods, including high-end automobiles and tobacco products.

This simplification reduces compliance burdens and enhances transparency.

What’s Affordable Now ?

The new GST rates have led to price reductions in several everyday items:

• Food Staples: Roti, paratha, paneer, and khakra are now tax-free.

• Dairy Products: Butter, ghee, and cheese have seen a reduction from 12% to 5%.

• Personal Care Items: Shampoo, toothpaste, and shaving cream are now taxed at 5%, down from 18%.

• Household Goods: Utensils, feeding bottles, and baby diapers have also benefited from the reduced tax rates.

These changes are expected to lower household expenses and increase disposable income.

What’s More Expensive?

Certain luxury and non-essential items now attract a 40% GST:

• High-End Vehicles: Luxury cars and premium motorcycles are now taxed at 40%.

• Electronics: Premium gadgets and home appliances have seen a tax increase.

• Tobacco Products: Cigarettes and pan masala are now subject to the highest tax slab.

This move aims to discourage consumption of luxury and harmful products while increasing government revenue.

Hospitality and Wellness Sector

The hospitality and wellness industries have also seen significant changes:

• Hotel Stays: GST on hotel room tariffs up to ₹7,500 per day has been reduced from 12% to 5%.

• Wellness Services: Gyms, salons, and yoga centers now attract a 5% GST, down from 18%.

These reductions are expected to make travel and wellness services more affordable, boosting domestic tourism and health-conscious spending. 

Sectoral Impacts

The GST reforms have varying effects across different sectors:

• Automobiles: While luxury vehicles face higher taxes, affordable electric vehicles (EVs) have seen tax reductions, promoting green transportation.

• Textiles: Branded apparel priced above ₹2,500 now attract an 18% GST, impacting the premium fashion segment.

• Renewable Energy: GST on solar panels and related equipment has been reduced, encouraging sustainable energy solutions.

These sector-specific changes aim to balance economic growth with environmental sustainability. 

Implementation Timeline

The new GST rates came into effect on September 22, 2025. Businesses have been provided a three-month window to update their billing software and accounting systems to comply with the new tax structure. Additionally, helpdesks and GST Seva Kendras have been set up across India to assist taxpayers during the transition.

Conclusion

GST 2.0 marks a major shift in India’s taxation landscape, making essentials more affordable while taxing luxury consumption more heavily. Businesses and consumers alike should adapt quickly to make the most of the benefits and stay compliant.

Frequently Asked Questions About GST 2025

Q1: What are the new GST slabs in India?
 A1: The new GST slabs are 5%, 18%, and 40%. Essentials are taxed at 5%, most goods and services at 18%, and luxury or sin goods at 40%.

Q2: When did the new GST rates come into effect?
 A2: The GST 2.0 reforms came into effect on September 22, 2025.

Q3: Which items have become cheaper under the new GST regime?
 A3: Essentials like food staples, dairy products, personal care items, household goods, hotel stays under ₹7,500, and wellness services have become more affordable.

Q4: Which items are now taxed at higher rates?
 A4: Luxury vehicles, premium electronics, tobacco products, and other high-end items are taxed at 40% under the new structure.

Q5: How will the GST reform impact households?
 A5: Households benefit from lower prices on essentials, increased disposable income, and more affordable access to wellness and travel services.

Q6: How does GST 2.0 affect the automobile sector?
 A6: While luxury vehicles face higher taxes, affordable and electric vehicles have seen reduced GST, encouraging environmentally friendly transportation.

Q7: What about the hospitality sector?
 A7: Hotel chains are passing on the GST reduction to customers, maintaining stable room rates and boosting domestic tourism.

Q8: Are there any benefits for the renewable energy sector?
 A8: Yes, GST on solar panels and renewable energy equipment has been reduced, promoting sustainable energy adoption.

Q9: How long do businesses have to comply with the new GST rates?
 A9: Businesses were given a three-month window from September 22, 2025, to update billing systems and comply with the new tax structure.

Q10: Where can I find the official GST Ready Reckoner?
 A10: The updated GST Ready Reckoner by the Central Board of Indirect Taxes and Customs (CBIC) can be accessed here.

Q11: Will GST 2.0 increase inflation?
⁠A11: In the short term, some luxury goods may become expensive, but overall, GST 2.0 is designed to reduce inflationary pressure by lowering taxes on essentials.