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Centre Unveils Two-Slab GST Overhaul: 5% and 18% Rates and 40% for Sin Goods.

Economy Business | Dated: 18 Aug 2025

On August 15, 2025, Prime Minister Narendra Modi announced a significant overhaul of India's Goods and Services Tax (GST) system during his Independence Day speech. The proposed changes aim to simplify the current four-tier tax structure by introducing two primary slabs of 5% and 18%, with a special 40% rate for luxury and sin goods. This reform is expected to be finalized by the GST Council in September or October 2025 and could be implemented by Diwali 2025 .

🎯 Key Highlights:

  • - The proposed two-slab GST structure is designed to replace the existing four-tier system, which includes 0%, 5%, 12%, 18%, and 28% slabs. Under the new structure, essential food items will remain tax-free, while most goods currently taxed at 12% will move to the 5% slab, and many items in the 28% bracket will shift to the 18% slab. A special 40% rate will apply to select luxury and sin goods, such as tobacco and pan masala.
  • - The GST Council, chaired by Union Finance Minister Nirmala Sitharaman, is set to convene in the coming weeks to discuss and finalize the proposed changes.
  • - The Council comprises the Union Finance Minister and the finance ministers of all Indian states and union territories. The upcoming meeting will focus on streamlining the tax structure, addressing classification disputes, and facilitating quicker business registrations and expedited refund processes.

💡 Other Important Facts:

  • (i) This GST overhaul is part of the government's broader agenda to boost consumption and stimulate economic growth. By reducing the tax burden on everyday items, the reform aims to make goods more affordable for consumers, thereby encouraging spending and supporting key sectors such as agriculture, healthcare, and manufacturing.
  • (ii) The proposed changes are expected to have significant implications for various industries. For instance, the reduction in GST rates for automobiles and insurance premiums is likely to benefit manufacturers like Maruti Suzuki, Hyundai, and Tata Motors, as well as insurance companies. Additionally, sectors such as cement and consumer electronics may see a boost in demand due to the revised tax structure.
  • (iii) While the reform is anticipated to stimulate economic activity, it may also strain government finances. The proposed tax cuts are expected to cost the government approximately $20 billion annually. However, the government projects that the reform will boost India's GDP by 0.6 percentage points over the next year, contributing to economic growth and improved market sentiment.

📚 Test Your Knowledge:

Recently, what are the standard GST rates under the new two-slab system?

Correct Answer: 5% and 18%

🚀 Quick Recap: