GST Rate Overhaul — Understanding the New Slabs & Impact on Consumers & Businesses

In a landmark move, the 2025 tax reforms under GST 2.0 simplified India’s GST slab structure — eliminating older slabs and introducing a cleaner, three-tier system: 5%, 18%, and 40% for luxury and sin goods. (cleartax)

The 5% slab now covers daily essentials, many FMCG items, certain agricultural equipment and other basic goods, easing the burden on everyday consumers. (cleartax)

The 18% slab has become the new standard for most goods and services that were previously under 12% or 28% — including appliances, small cars and a wide range of consumer durables. (cleartax)

The 40% slab is reserved for luxury or sin goods such as high-end cars, tobacco and certain beverages. These items were already heavily taxed, but are now clearly positioned in a premium tax band. (cleartax)

Certain essential categories — including some medicines and health or insurance services — now enjoy exemptions or zero-rated status under the new structure. (cleartax)

For consumers, the immediate effect is cheaper basics. Items in the 5% slab should see lower shelf prices, which can support mass-market consumption.

Durables and small cars that now fall into the 18% slab can become more affordable compared to the earlier 28% rate, improving demand in value and mid-market segments.

Businesses, especially SMEs, need to revisit pricing models, product mixes and inventory planning. Lower GST on inputs or outputs can improve margins if structured well.

At the same time, luxury and sin goods attract a much heavier burden under 40%, so brands in these segments may need to reposition, absorb part of the cost, or refine their messaging for high-end buyers.

SMEs and startups dealing in FMCG, electronics, auto-ancillaries or similar categories should quickly update their billing systems, rate masters and invoice templates to reflect the new slabs.

For accounting and bookkeeping firms, this change is an opportunity to advise clients on revised GST computations, input tax credit optimisation and the impact on monthly cash flows.

On the communication side, highlighting GST-linked savings or price advantages in blogs, reels or email campaigns can grab attention from cost-conscious buyers and small businesses.

Overall, GST 2.0’s slab overhaul simplifies indirect taxation and makes everyday goods more accessible, while clearly ring-fencing luxury and sin categories for higher taxation.

For advisors and entrepreneurs, the key is to realign pricing, compliance and messaging quickly so that businesses stay both competitive and fully compliant under the new structure.