GST Council Approves Two-Tier Tax Structure, Effective September 22

The Goods and Services Tax (GST) Council, in its 56th meeting on Wednesday, approved the GST two-tier structure, marking one of the biggest reforms in the eight-year-old indirect tax system. The meeting, chaired by Union Finance Minister Nirmala Sitharaman, lasted over 10 hours and brought together ministers from 31 states and Union Territories. As a result, GST will now move to a simpler model with two slabs—5% and 18%—effective September 22, 2025, while super luxury and sin goods will attract a higher 40% rate.

Why the Reform Matters

The shift to a two-tier system is designed to lower the tax burden on common people and simplify compliance for businesses. Moreover, it addresses long-standing issues such as blocked working capital and inverted duty structures, which previously created cash flow challenges.

Prime Minister Narendra Modi welcomed the decision, calling it a “pro-people reform” that will benefit households, MSMEs, farmers, and young entrepreneurs alike. He emphasized that the wide-ranging reforms will not only improve lives but also strengthen India’s business ecosystem.

What Gets Cheaper and What Gets Costlier

The Council announced sweeping rate cuts across essential goods and services. Food items such as packaged juices, butter, cheese, paneer, and pizza bread will now fall under the 5% slab, while medical supplies including oxygen, bandages, and diagnostic kits will also see reduced rates.

In addition, daily-use products such as soaps, shampoos, toothpaste, bicycles, and kitchenware will shift from higher slabs to 5%. Even white goods like ACs, dishwashers, and TVs will now attract 18% instead of 28%.

However, luxury and sin goods such as tobacco, pan masala, and large cars will move to the highest 40% category, signaling the government’s intent to discourage their consumption.

Relief for Insurance and Services

Another major highlight was the blanket exemption for life and health insurance policies. From term and ULIP plans to senior citizen health policies, all will now be free of GST. Furthermore, well-being services like gyms, salons, and yoga centers will benefit from reduced GST at 5%, compared to the previous 18%.

Revenue and Industry Outlook

While some states initially flagged concerns over potential revenue loss, the Finance Ministry estimated the reform’s net fiscal impact at ₹48,000 crore, which it described as “fiscally sustainable.”

Industry leaders, including the Confederation of Indian Industry (CII), praised the GST overhaul. They argued that clarity in slabs will reduce disputes, simplify compliance, and give both businesses and consumers much-needed predictability. Companies also pledged to pass on the benefits of tax cuts to end-users.

Outlook: GST 2.0 for a Simpler Future

By consolidating four different slabs into just two, the GST two-tier structure eliminates confusion and provides stability. In addition, it resolves classification disputes that often arose between similar products taxed at different rates.

Finance Minister Sitharaman stressed that the reforms are aimed squarely at the common man. “Everyday essentials, labour-intensive industries, farmers, and healthcare all stand to benefit. This reform is not just about rate rationalization—it’s about structural change and ease of living,” she said.

Therefore, as the new system rolls out on September 22, India enters a more streamlined GST era. The reforms are expected to deliver relief for households, predictability for businesses, and long-term stability for the economy.

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