The New GST Rates in India 2025 is about to go through one of the biggest changes since it was first introduced in 2017. In its 56th meeting, the GST Council has decided to simplify the rate structure and reduce the number of slabs. The new GST rates will come into force from 22nd September 2025, just before the festive season.
In this blog post, we will explain the new GST rates, items under each category, impact on common people, businesses, and the auto industry, along with answers to frequently asked questions.
Key Highlights of the New GST System
- New rate structure: Only two slabs – 5% and 18%.
- Special slab of 40%: For luxury goods and sin items (like tobacco, cigarettes, aerated drinks, luxury cars, etc.).
- Zero tax on essentials: Many daily-use medicines, books, stationery, and milk products made tax-free.
- Effective date: 22nd September 2025 (first day of Navratri).
- Goal: To simplify the GST system, reduce tax burden on common man, and boost economic growth.
Union Finance Minister Nirmala Sitharaman said the reforms are aimed at the common man, farmers, and small businesses.
When Will the New GST Rates Apply?
The revised GST rates will be applicable from 22nd September 2025 on all goods and services except tobacco products like cigarettes, beedis, zarda, and chewing tobacco.
For these specified products, the current rates will continue until the government clears pending loan and compensation cess liabilities.
GST Slabs Before vs After
| GST Slabs Before (Old) | GST Slabs After (New) |
| 5% | 5% |
| 12% | 18% |
| 18% | 18% |
| 28% (+ compensation cess) | 40% (special rate for sin & luxury goods) |
Goods & Services at 0% GST (Exempted)
Some essential goods and services are now completely tax-free:
- Medicines: 33 life-saving drugs, cancer medicines, medicines for rare diseases.
- Education items: Maps, charts, globes, pencils, sharpeners, crayons, pastels, exercise books, notebooks, erasers.
- Dairy & food products: UHT milk, paneer (pre-packaged & labelled), pizza bread, khakhra, roti/chapati.
This means daily household expenses on basic items will go down.
Goods & Services at 5% GST
Daily-use items and essential services are put under low tax rate of 5%:
- Personal care: Hair oil, shampoo, toothpaste, toothbrush, shaving cream, toilet soap.
- Food items: Butter, ghee, cheese, namkeens, baby feeding bottles, diapers, napkins.
- Medical: Thermometers, medical-grade oxygen, diagnostic kits, glucometer & strips, corrective spectacles.
- Agriculture: Tractors, tractor tyres & parts, bio-pesticides, micro-nutrients, drip irrigation, sprinklers.
- Appliances: Sewing machines & parts.
Goods & Services at 18% GST
The standard rate of GST has been fixed at 18% for most goods and services:
- Automobiles:
- Petrol/LPG/CNG cars up to 1200 cc & 4000 mm length.
- Diesel cars up to 1500 cc & 4000 mm length.
- Motorcycles up to 350 cc.
- 3-wheelers.
- Goods transport vehicles (lorries, trucks).
- Petrol/LPG/CNG cars up to 1200 cc & 4000 mm length.
- Appliances & electronics: Air conditioners, dishwashers, televisions (any size), monitors, projectors.
- Construction: Cement, construction materials.
- Medical devices: All medical devices and instruments (except exempted ones).
Earlier, many of these items attracted 28% GST. So, the cost of vehicles, ACs, TVs, and construction materials is expected to drop.
Goods & Services at 40% GST (Special Rate)
This special high tax rate applies only to sin goods and luxury items:
- Tobacco products: Cigarettes, gutka, pan masala, zarda, beedis.
- Luxury beverages: Aerated water, soft drinks with sugar, caffeinated drinks.
- Luxury vehicles: Cars exceeding 1500 cc / 4000 mm, SUVs, big motorcycles above 350 cc, yachts, aircraft for personal use.
- Entertainment & gaming: Betting, gambling, casinos, horse racing, online money gaming, IPL-like events.
- Luxury firearms: Revolvers, pistols, smoking pipes.
Purpose: To discourage consumption of harmful goods while keeping tax incidence the same after removal of compensation cess.
Impact on Automobiles & Bikes
The biggest effect of GST changes will be seen in the automobile sector.
Small Cars
- Old GST: 28%
- New GST: 18%
- Effect: Prices of cars like Maruti Alto, WagonR, Hyundai i10, Tata Tiago will drop by 8–10%.
Big Cars & SUVs
- Old GST + cess: 45–50%
- New GST: 40% (no cess)
- Effect: Minor increase for luxury cars.
Motorcycles
- Up to 350 cc: 18% (earlier 28%). → Hero, Honda, TVS benefit.
- Above 350 cc: 40% (earlier 28%+cess). → Royal Enfield, Bajaj face challenges.
EVs
- GST remains at 5%. → A big boost for electric vehicles.
GST on Medicines & Healthcare
- All medicines now at concessional rate of 5%.
- Life-saving drugs & cancer medicines – 0% (exempted).
- Medical devices – 5% rate to make healthcare affordable.
- Health insurance policies – exempted from GST.
This will directly reduce medical bills and insurance premiums for families.
GST on Agriculture & Farmers
- GST on tractors, drip irrigation, sprinklers, agricultural machinery reduced to 5%.
- Aim: To support farmers, lower equipment cost, and encourage modern farming.
- Not fully exempted → because manufacturers need ITC (input tax credit). If exempted, farmers would indirectly pay higher prices.
GST on Housing & Construction
- GST on cement & building materials reduced from 28% to 18%.
- Effect: Affordable housing projects will become cheaper.
- Boost to real estate sector and “Housing for All” mission.
GST on Services
- Beauty & wellness (salons, gyms, yoga): 5% (earlier 18%).
- Hotel rooms under ₹7500/day: 5%.
- Passenger transport:
- Road (buses, autos, taxis): 5%.
- Air (economy): 5%; Business class: 18%.
- Road (buses, autos, taxis): 5%.
- Goods transport (GTA, container, multimodal): Options of 5% (without ITC) or 18% (with ITC).
- Job work in pharma & leather: 5% (earlier 12%).
Common FAQs About New GST Rates
1. Will GST apply on old stock after 22nd September 2025?
Yes. GST depends on the date of supply, not when you purchased stock.
2. What about advance payments before new rates?
Rate will depend on time of supply rules under Section 14 of CGST Act.
3. Do I have to reverse ITC if my goods become exempt?
Yes. If your goods/services are exempt after 22nd September, you cannot use ITC for those supplies.
4. Will e-way bills need to be regenerated?
No. E-way bills already generated will remain valid.
5. Why is GST still on cotton?
To maintain input credit chain in textiles. Farmers are not affected as GST is collected on reverse charge basis.
Revenue Impact on Government
- Revenue loss estimated:
- Cars: ₹25,000–30,000 crore per year.
- Two-wheelers: ₹18,000–20,000 crore per year.
- Cars: ₹25,000–30,000 crore per year.
- Revenue gain:
- Luxury cars & big bikes → ₹5,000–7,000 crore extra.
- Luxury cars & big bikes → ₹5,000–7,000 crore extra.
- But government expects higher sales during festive season and GDP growth to compensate.
Final Thoughts
The new GST system effective from 22nd September 2025 is a major reform that simplifies India’s indirect tax structure.
- Good news for consumers: Lower prices on daily use goods, medicines, cars, bikes, and construction materials.
- Support for farmers & healthcare: Reduced rates on agriculture machinery, medicines, and medical devices.
- Focus on luxury & sin goods: Higher tax (40%) on cigarettes, liquor, luxury cars, and gambling.
This is a big relief for the common man and a boost for industries like auto, housing, and healthcare.
Also read-SBI Loan Interest Rates Revised from 15 August 2025