gst new update 2025 The Goods and Services Tax (GST) is an indirect tax system in India that, effective July 1, 2017, integrated multiple taxes levied by the central and state governments. It reduced the cascading effect of taxes, simplified procedures, created a national market, and increased transparency.
Over time, the economy changes, consumer needs evolve, and revenue and social needs evolve. Therefore, periodic reforms to the GST system become necessary. The "Next-Gen GST Reforms" implemented in 2025 are considered a milestone in these reforms.
Below, we will examine these new reforms in detail, their challenges, their impact, and the way forward.
New GST Reforms of 2025 — Key Points
Several significant changes were made in 2025 to make GST simpler, based on lower rates, and more fair. These include the following key points:
Rate Rationalization
The old four slabs (5%, 12%, 18%, and 28%) were discontinued, replacing them with two main slabs—5% and 18%.
Additionally, a special rate of 40% was introduced for "demerit/sin goods" (undesirable or luxury items).
A 0% (exempt) rate was established for certain essential goods and medicines.
Effective Date
These reforms will come into effect from September 22, 2025.
MRP Revision on Unsold Stock
A provision has been made for applying the new rates to goods manufactured or packaged under the old GST rates but not yet sold—for example, by affixing stickers, printing new MRPs, etc. Certain conditions have been imposed for this:
The original MRP must not be erased.
If taxes are increased, the stock should not exceed the tax increase limit.
If taxes are reduced, the new MRP should not exceed the old price.
This change should be communicated to traders, users, and metrology authorities.
Relief on Food, Medicines, and Essential Commodities
Tax rates on everyday items such as soap, toothpaste, bread, milk, etc. have been reduced or placed in the 0% category.
Life and health insurance has been reduced from 18% to 0% (GST-free).
Taxes on agricultural equipment, irrigation equipment, etc. have been reduced.
Higher rates for special/luxury goods (40%)
The new reforms impose a 40% tax rate on luxury goods, tobacco products, carbonated drinks, private aircraft, etc.
Revenue and Budget Impact
The government may face a revenue loss due to the reduction in tax rates.
However, the government has also estimated that increased consumer spending and improved tax compliance could restore some of this revenue.
Other Important Provisions
Old rates will remain applicable for some products, such as cigarettes, zarda, and unmanufactured tobacco, for now—the new rates will be implemented later.
These reforms were proposed and approved at the GST Council meeting (56th meeting).
Emphasis will be placed on further simplifying the GST portal and refund process to facilitate compliance for businesses.
Analysis and Impact of These Reforms
Below, we will examine the benefits, challenges, and potential impacts of these reforms in detail.
Pros
Consumer Relief
Items on which tax rates have been reduced—such as household items—will become cheaper to purchase. This could directly benefit the general public.
Simplified Tax Structure
Reducing the number of tax slabs will make the tax system more clear and streamlined. This will make it easier for businesses and taxpayers to understand and comply.
Potential for Increased Consumer Spending
When essential goods become cheaper, consumer spending may increase, boosting economic activity.
Compliance Improvements and Tax Evasion Curbs
Simplified regulations and technological improvements may improve tax compliance and reduce tax evasion.
Benefits to MSMEs and Small Industries
Simplified structures and lower rates will provide relief to small businesses.
Challenges / Risks
Fear of Revenue Loss
If tax cuts do not return sufficient revenue, the government may face difficulty maintaining a budget surplus.
Unexpected Impact of Rate Hike
Prices of goods moved from the 12% to the 18% slab may increase, negatively impacting demand for those products.
Compliance and Implementation Issues
Implementing MRP revisions on old stock
Informing traders and consumers of the changes
Notifying Metrology and Standards Authorities
Updating billing, packaging, and tax systems to comply with the new rates
Uneven Benefit Distribution
Large industries and corporations with greater resources can benefit better from the changes, while small and resource-constrained traders may face challenges.
Timely and Smooth Transition
It is important to implement the changes in a timely and systematic manner to avoid market disruption or supply chain disruptions.
Example: What changes occurred for which item?
Below is a comparative example of the previous and new tax rates on some items:
Item/Category Old Rate New Rate/Status Comments
Everyday items like soap, toothpaste, bread, etc. Previously 12% / 18% Tax relief extended to 5% / 0%
TVs, ACs, household appliances Previously 28% / 18% Rate reduced
Clothing, garments if value ≤ ₹2,500 Previously 5%, now 5% (threshold raised)
Clothing if value > ₹2,500 Previously 12%, now 18% Rate increased
Life/Health Insurance Previously 18%, now 0% (free) Tax Decision
Tobacco, cigarettes, etc. Old tax + cess Rate same for now, new rate applicable later. No change yet
Further date
