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GST Council Reduces Tax Slabs to Two (5% & 18%), Effective from September 22, 2025.

National | Dated: 05 Sep 2025

In a landmark reform, the GST Council, chaired by Finance Minister Nirmala Sitharaman, has streamlined India’s Goods and Services Tax (GST) structure by cutting the four existing tax slabs (5%, 12%, 18%, and 28%) to just two—5% and 18%. This change, aimed at boosting consumer spending and easing the burden on the middle class, will come into effect on September 22, 2025.

🎯 Key Highlights:

  • - The GST overhaul involves scrapping the 12% and 28% slabs, consolidating multiple rates into the 5% (“lower” or “merit”) and 18% (“standard”) bands. A higher 40% slab shall continue to apply to sin and luxury goods, such as tobacco, sugary drinks, high-end vehicles, and yachts. The reforms are intended as a “people’s reform” and will benefit a wide range of goods—especially those consumed by the common man.
  • - The tax revision is expected to reduce prices on essentials like food, daily staples, medicines, personal care, consumer durables, and renewable energy equipment. Sectors like FMCG, footwear, groceries, quick-service restaurants (QSRs), and consumer electronics are poised to see demand buoyed due to improved affordability.
  • - The reform has already boosted investor sentiment—India’s stock markets rallied in response, with auto, consumer goods, and mid-cap segments gaining ground. Analysts estimate the simplification could add 100–120 basis points (approx. 1–1.2%) to India’s GDP within the next few quarters.

💡 Other Important Facts:

  • (i) The GST cuts are positioned as an early festive boost ahead of Diwali, offering budget relief to households and streamlining compliance. Industry bodies like the Confederation of Indian Industry (CII) have welcomed the reform, noting that it reduces litigation and promotes ease of doing business.
  • (ii) While this move will result in temporary revenue loss—estimated at ₹48,000 crore—Finance Ministry officials affirm it remains fiscally sustainable. The government has promised measures such as simplifying refunds and MSME compliance to maintain revenue flows and minimize long-term impact.

📚 Test Your Knowledge:

Recently, what are the two GST rates decided by the GST Council after scrapping 12% and 28% slabs?

Correct Answer: 5% and 18%

🚀 Quick Recap: