On August 15, 2025, during his Independence Day address, Prime Minister Narendra Modi announced the “next-generation” GST reforms, dubbed GST 2.0, set to transform India’s tax landscape by Diwali 2025. These reforms, discussed and finalized at the 56th GST Council Meeting on September 3–4, 2025, in New Delhi, aim to simplify the tax structure, reduce the tax burden on consumers, and enhance ease of doing business for MSMEs and industries. The key focus areas include structural reforms, rate rationalization, and leveraging technology for compliance. Below, we explore the changes introduced and provide a comprehensive list of items affected by the new tax slabs.

The GST 2.0 framework is built on three pillars:

1. Structural Reforms: Addressing issues like inverted duty structures to free up working capital and improve manufacturing competitiveness.
2. Rate Rationalization: Reducing the number of tax slabs from four (5%, 12%, 18%, 28%) to two main slabs (5% and 18%), with a new 40% slab for sin goods.
3. Ease of Living: Simplifying compliance through pre-filled returns, faster refunds, and technology-driven processes like the Invoice Management System (IMS) and E-Way Bill 2.0.

These reforms are expected to reduce household expenses, boost consumption, and support India’s goal of becoming a $5 trillion economy by 2047. However, they may result in an estimated annual revenue loss of ₹85,000 crore, which the government anticipates will be offset by increased consumption and better compliance.

The current GST structure (5%, 12%, 18%, 28%) has been simplified into:

• 0%: Retained for essential goods like food, medicine, and education-related products.
• 5%: Expanded to include most items previously under the 12% slab, covering daily essentials and select goods.
• 18%: Now includes about 90% of items previously under the 28% slab, such as consumer durables and automobiles.
• 40%: A new slab for sin goods like tobacco, cigarettes, and beer.

The compensation cess, previously levied on high-end goods, will end by October 30, 2025, after repaying loans taken during the COVID-19 pandemic, providing fiscal space for these changes.

The following list details items that have shifted to new tax slabs under the GST 2.0 reforms, based on announcements and reports from the GST Council and related sources:

Items Moving from 12% to 5% Slab

• Daily Essentials:
  • Toiletries: Soaps, shampoos, toothpaste, hair oil
  • Packaged food: Tea, sugar, spices, millet flour (pre-packaged and labeled)
  • Low-cost garments: Clothing and footwear under ₹1,000
• Agricultural and Household Goods:
  • Agricultural equipment: Tractors, plows, and irrigation tools
  • Bicycles and bicycle parts
  • Fortified Rice Kernel (HSN 1904)
  • Food preparations for free distribution under ICDS (economically weaker sections, conditional 5% rate)

Items Moving from 28% to 18% Slab

• Consumer Electronics and Durables:
  • Air conditioners
  • Televisions
  • Refrigerators
  • Washing machines
  • Mobile phones
• Automobiles:
  • Small cars (up to 1200cc petrol, 1500cc diesel)
  • Two-wheelers (bikes and scooters)
  • Used electronically operated vehicles (EVs, marginal value now taxed at 18% instead of 12%)
• Construction Materials:
  • Cement
  • Paints
  • Steel and tiles
• Packaged Foods:
  • Snacks (chips, namkeen)
  • Chocolates and confectionery
• Hospitality:
  • Hotel accommodations charging above ₹7,500 per night (previously under declared tariff system)

Items in the New 40% Slab (Sin Goods)

• Tobacco products: Cigarettes, cigars, chewing tobacco
• Alcoholic beverages: Beer, spirits
• Luxury goods: High-end watches, premium jewelry
• Online gaming, lotteries, and casinos (select categories)

Items Remaining at 0% (Exempt)

• Food: Unpackaged milk, vegetables, fruits, grains
• Medicine: Lifesaving drugs, gene therapy (HSN-exempt as per CGST notification 2/2025)
• Education: School books, stationery for educational purposes
• Millet flour (loose, 70% millet composition, HSN 1901)

Other Notable Changes

• Life and Health Insurance: Exempted from GST to make financial protection more affordable.
• SEZ/FTWZ Warehousing: Supply of goods in Special Economic Zones (SEZ) or Free Trade Warehousing Zones (FTWZ) before clearance for export or domestic use is now treated as neither a supply of goods nor services (effective July 1, 2017, per Finance Bill 2025).
• Vouchers: Removed from GST taxability by omitting sections 12(4) and 13(4) of the CGST Act, resolving long-standing disputes (effective April 1, 2025).

To support the new tax structure, several compliance changes have been introduced:

• Pre-filled Returns: Auto-populated GSTR-3B forms (effective July 2025) to reduce manual errors, with corrections allowed only via GSTR-1A.
• Invoice Management System (IMS): Launched October 1, 2024, to validate invoices and ensure accurate Input Tax Credit (ITC) claims.
• E-Way Bill 2.0: A synchronized portal for better tracking of goods movement (effective July 2025).
• Mandatory Biometric Authentication: Required for company directors at GST Suvidha Kendras from March 4, 2025, to enhance registration security.
• E-Invoice Reporting: Extended to businesses with AATO above ₹10 crore (effective April 1, 2025), requiring B2B invoices to be reported within 30 days.
• Three-Year Filing Limit: Returns like GSTR-1, 3B, and 9 cannot be filed after three years from the due date (effective July 2025).

Sectoral Impact

• Consumers: Lower taxes on essentials, electronics, and automobiles will reduce household expenses, boosting festive season spending.
• MSMEs: Simplified compliance, faster ITC distribution, and lower rates will reduce costs and encourage formalization.
• Automobile Industry: Reduced GST on cars and bikes is expected to revive demand, with sales already impacted by consumers deferring purchases.
• Real Estate: Lower taxes on cement and construction materials will make housing more affordable.
• FMCG and Electronics: Cheaper goods like snacks, chocolates, and appliances will drive consumption.

While the reforms promise significant benefits, challenges remain:

• Revenue Loss: An estimated ₹85,000 crore annual loss may strain state finances, requiring careful monitoring.
• State Consensus: The GST Council, comprising state and central representatives, must approve all changes, and some states have expressed concerns about revenue impacts.
• Anti-Profiteering: Mechanisms are needed to ensure businesses pass on tax savings to consumers.
• Petroleum Exclusion: Petroleum products remain outside GST, continuing to cause cascading taxes in transport-heavy sectors.

The GST 2.0 reforms mark a bold step toward a simpler, consumer-friendly tax system. By reducing tax slabs, lowering rates on essentials, and streamlining compliance, the government aims to boost economic growth and ease the tax burden on the common man. The success of these reforms hinges on effective implementation by the GST Council and cooperation from states. As India gears up for Diwali 2025, these changes promise to be a significant “Diwali gift” for consumers, businesses, and the economy at large.