The GST Council has folded four tax rates into two, effective September 22. Toothpaste, small cars and health insurance all get cheaper. The government is betting that lower rates bring in more spending than they cost in revenue.
Eight years after GST replaced a tangle of state and central taxes, the system is being simplified again. On September 3, the GST Council, where the Centre and every state vote together, agreed to collapse four main rates into two. From September 22, the first day of Navratri, most goods will be taxed at either 5% or 18%. The 12% and 28% slabs disappear, and a new 40% rate applies to a short list of sin and luxury goods.
What gets cheaper
The list is long and deliberately ordinary. Toothpaste, soap, shampoo and hair oil drop from 18% to 5%. Small cars, motorcycles under 350cc, televisions, air conditioners and cement fall from 28% to 18%. Many packaged foods move to 5% or zero. Most significant for households, premiums on individual life and health insurance, which carried 18% GST, become fully exempt. For a family paying ₹25,000 a year for health cover, that alone is a saving of ₹4,500.
Why cut taxes now?
GST is an indirect tax, which means everyone pays the same rate regardless of income. A cut in GST therefore reaches the poorest household as surely as the richest, and it shows up immediately in shop prices rather than at the end of the year in a tax refund. The timing is not accidental either. The United States has just imposed a 50% tariff on many Indian exports, and the government wants domestic consumption to pick up the slack that weaker exports may leave behind.
A tax cut is a bet that people will spend more, and that the extra spending will be taxed too.
The bet
The government estimates the net revenue cost at roughly ₹48,000 crore a year. It is wagering that cheaper goods lead to more purchases, that more purchases mean more factories running and more people hired, and that all that activity generates tax of its own. Economists call this a multiplier effect. Whether it pays for itself will become clear in the GST collection numbers over the next few months. The first test arrives quickly, in car showrooms and electronics shops during the festival season that begins the same week the new rates do.
Sources: GST Council, 56th meeting, September 3, 2025; Ministry of Finance press releases.
- From September 22, GST has two main rates, 5% and 18%, plus a 40% rate for sin and luxury goods.
- Soap, toothpaste, small cars, TVs, ACs and cement all move to lower slabs.
- Individual life and health insurance premiums become fully exempt from GST.
- The government estimates a net revenue cost of about ₹48,000 crore, and hopes higher spending makes up much of it.
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