The Next-gen GST Reforms 2025 have been approved and announced by the Finance Minister of India in the 56th meeting of the GST Council. The reforms are designed to directly benefit the common man, farmers, MSMEs, women, youth, and middle-class families, while also boosting India’s long-term economic growth.
A major development in the reforms is the rationalisation of the current 4-tiered GST tax rate structure into a ‘Simple Tax’ – a 2-rate structure with only two tax slabs: a Standard Rate of 18% and a Merit Rate of 5%. However, a special de-merit rate of 40% is applicable for a select few goods and services like tobacco-based products, alcoholic beverages, and luxury vehicles.Â
The new GST rates will come into effect from 22 September 2025.
Quick GST Reforms 2025 Snapshot
- A simpler two-slab GST system: 5% (merit) & 18% (standard), with a 40% special rate for luxury/unhealthy goods.
- Insurance: Life & Health policies now 0% GST
- Essentials: Food, medicines, school supplies – 0–5%
- Household Items: Soaps, shampoos, bicycles, packaged foods –Â 5%
- Regular Goods: Appliances, cement, small cars, bikes – 18%
- Luxury & Harmful Goods: Luxury cars, tobacco, soft drinks –Â 40%
- Healthcare Relief: Life-saving drugs & medical devices – 0–5%
- Services: Hotels ≤ ₹7,500/day, gyms, salons, yoga – 5%
- Agriculture & MSMEs: Tractors, equipment, handicrafts, marble, leather – 5%
- Textiles & Fertilisers: Man-made fibre, yarn, fertiliser inputs –Â 5%
- Renewable Energy: Solar, wind, and green energy devices –Â 5%
Old Vs. New GST Tax Rates
To help you understand the new GST changes, here is a simple comparison between the old GST rates and the new ones.Â
| Category | Items | Old GST Rate | New GST Rate |
| Food & Household | UHT milk | 5% | Nil |
| Food & Household | Paneer (pre-packaged & labelled) | 5% | Nil |
| Food & Household | Indian breads (all types) | 5% | Nil |
| Food & Household | Soaps, shampoos, toothbrushes, toothpaste | 12% or 18% | 5% |
| Food & Household | Tableware, bicycles | 12% | 5% |
| Food & Household | Packaged namkeens, bhujia, sauces, pasta, chocolates, coffee, and preserved meat | 12% or 18% | 5% |
| Food & Household | TVs (LCD/LED >32 inches) | 28% | 18% |
| Food & Household | Air Conditioners | 28% | 18% |
| Food & Household | Dishwashers | 28% | 18% |
| Home Building & Materials | Cement | 28% | 18% |
| Home Building & Materials | Marble/travertine blocks, granite blocks, sand-lime bricks | 12% | 5% |
| Home Building & Materials | Bamboo flooring/joinery, packing cases & pallets (wood) | 12% | 5% |
| Automobiles | Small cars, two-wheelers ≤350cc | 28% | 18% |
| Automobiles | Buses, trucks, three-wheelers, auto parts | 28% | 18% |
| Agriculture | Tractors | 12% | 5% |
| Agriculture | Tires and parts (for tractors) | 18% | 5% |
| Agriculture | Harvesters, threshers, sprinklers, drip irrigation, poultry & bee-keeping machines | 12% | 5% |
| Agriculture | Bio-pesticides and natural menthol | 12% | 5% |
| Services | Hotel stays up to ₹7,500/day | 12% | 5% |
| Services | Gyms, salons, barbers, yoga services | 18% | 5% |
| Textiles & Handicrafts | Man-made fibre | 18% | 5% |
| Textiles & Handicrafts | Man-made yarn | 12% | 5% |
| Textiles & Handicrafts | Handicraft idols & statues | 12% | 5% |
| Textiles & Handicrafts | Paintings, sculptures | 12% | 5% |
| Textiles & Handicrafts | Wooden/metal/textile dolls & toys | 12% | 5% |
| Education | Exercise books, erasers, pencils, crayons, sharpeners | 5% / 12% | Nil |
| Education | Geometry boxes, school cartons, trays | 12% | 5% |
| Medical | 33 life-saving drugs, diagnostic kits | 12% | Nil |
| Medical | Other medicines (Ayurveda, Unani, Homoeopathy) | 12% | 5% |
| Medical | Spectacles and corrective goggles | 28% | 5% |
| Medical | Medical oxygen, thermometers, and surgical instruments | 12% / 18% | 5% |
| Medical | Medical, dental, and veterinary devices | 18% | 5% |
| Insurance | Life insurance & health insurance premiums | 18% | Nil |
Click here for Complete details on the GST slab changes and to find GST rate changes using HSN code.
Know how to update new GST Rates on myBillBook.
Why Were the New GST Reforms Implemented?
The GST reforms introduced in September 2025 aimed to improve the tax system as a whole, rather than just changing tax rates. The GST Council’s goal was to make taxes simpler, fairer, and better for economic growth while also helping families and important industries.
Here are the main reasons for the changes:
- Simplified Tax System: The tax structure has been simplified from four different tax rates (5%, 12%, 18%, and 28%) to just two main rates (5% and 18%). This makes it easier for everyone to understand and follow, reduces confusion, speeds up refunds, and makes it easier to do business.
- Help for Daily Essentials: Goods like food, medicines, and basic household items are now taxed at 0% or 5%. This means families can save money on their daily expenses, which helps keep prices stable and puts more cash into people’s hands.
- Support for Farmers and Small Businesses: Lower taxes on things like farming equipment, irrigation tools, cement, and handicrafts help reduce costs for small businesses and farmers. This makes them more competitive and encourages self-sufficiency in farming and local production.
- Fair Taxes on Luxury and Harmful Goods: Products like tobacco, aerated drinks, luxury cars, yachts, and private planes are now taxed at a higher rate of 40%. This means that people who buy expensive or harmful items pay more, while keeping basic essentials affordable for most people.
- Encouraging Spending and Economic Growth: When goods and services are cheaper, more people can afford them. Increased demand leads to more production, which creates jobs and boosts India’s economy.
Benefits of the New GST Reforms
The Next-Gen GST reforms aim to lower prices and boost the economy. Here’s a simple breakdown of the main benefits:
- Lower Prices, Higher Demand: Essential items like food and medicine will either have no tax or a very low tax (5%). This means families will spend less, which should lead to more people buying things.
- Support for Businesses: By reducing costs on things like cement, auto parts, and farm equipment, small businesses and farmers can save money and stay competitive.
- Ease of Living & Doing Business: With only two tax rates (5% and 18%), it will be easier to deal with taxes, leading to fewer arguments, quicker decisions, simpler rules, and faster refunds.
- Wider Tax Net: Making things simpler will encourage more people and businesses to pay taxes, which helps increase government revenue.
- Stronger Manufacturing & Exports: Fixing tax issues in industries like textiles, agriculture, and medical devices will help local businesses grow and sell more abroad.
- Revenue Growth with Simplicity: Previous reforms have shown that when tax rates go down and paying taxes becomes easier, overall tax collections can actually go up.
- Social Security & Protection: Exempting life and health insurance premiums from GST and lowering taxes on essential medicines will make healthcare more affordable and strengthen support for households.
FAQs on New GST Rates 2025
When will the new GST rates come into effect?
The new GST rates will be effective from 22nd September 2025 for most of the products. However, for some products like cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and beedi, the existing GST rates will continue to apply, and the new rates will be implemented at a later date.
What happens if I had supplied goods/services or both before the changes in GST rates came into force, but the invoices were issued later?
- If the payment is received after the change in the rate of tax, then the time of supply shall be the date of receipt of payment or the date of issue of the invoice, whichever is earlier.
- If the payment is received before the change in the tax rate, the time of supply shall be the date of receipt of the payment.
What would be the GST rate applicable if I have received advances for the supply of goods/services or both, but the supply has not been completed or an invoice has not been issued?
The GST rate will be determined in accordance with the time of supply provisions.
What will happen to the ITC for purchases made before changes in GST rates came into effect? Will I get ITC at a reduced rate now?
A registered business can claim credit for the GST it has already paid on purchases used for business. If the supplier charged GST at the correct rate at the time of purchase, the buyer is entitled to take that credit and use it to pay future GST, as long as other basic rules are followed.
If my sales rate is reduced but I already have ITC at a higher rate, can I still use it?
Yes. Once ITC is credited to your ledger, it remains valid and can be used to settle any upcoming GST dues, even if the outward supply now attracts a lower rate.
If my product is now exempt, what happens to the ITC already in my ledger?
You can use the ITC for supplies made before 22nd September 2025. After that date, for exempt supplies, the unused ITC will have to be reversed as per GST provisions.
Can I claim a refund of ITC if the rates changed after I already paid higher tax on inputs?
No. Refund of accumulated ITC is not allowed if the only difference is due to rate changes. Refund is permitted only when the inputs and outputs are different items.
If I have stock when new GST rates apply, which rate should I charge?
You must apply the new GST rate on any goods sold on or after 22nd September 2025, even if those goods were purchased or stocked earlier.
Do I need to cancel and re-generate e-way bills for goods in transit during the rate change?
No. e-way bills already generated before the journey started will remain valid, and there is no need to cancel or re-issue them just because of revised GST rates
Why is the 40% GST called a special rate?
Because it applies only to selected luxury and sin goods. Earlier, these attracted GST plus Compensation Cess, but now that cess has been merged into GST to keep the tax burden unchanged.
