Big GST Reform 2025: Simpler Tax Slabs, Cheaper Goods, and Boost for Key Sectors Ahead of Diwali

The Prime Minister, Narendra Modi, has announced that the centre is soon likely to rationalise GST to enhance the Indian economy, the world’s fourth-largest economy, and reduce the negative effects of higher US tariffs.

These suggested GST reforms include the reduction of GST rates on two-wheeler vehicles of less than 350 cc, small cars below 120 cc, hybrid passenger vehicles, etc. These reforms will facilitate simplifying the tax structure in the country, possibly merging it with the 5% or 18% slab. India currently has multiple GST rates (5%, 12%, 18%, and 28%), which creates confusion. The government is expected to reduce the number of tax slabs from four to two (the zero per cent slab is not included). These reforms will benefit a wide range of sectors like cars, cement, and everyday consumer products, as well as businesses of all sizes.

According to government sources, around 90% of the items currently taxed at 28% will be moved to the 18% rate. Most of the goods in the 12% category will be moved to 5%. This means that many essential and household items are likely to become cheaper. With that in mind, here’s a look at what might become more expensive and what will still remain costly after the new GST changes and tax cuts take effect around Diwali this year.

• According to recent reports, merging the 12% and 5% GST rates would lower taxes on many essential items. These include medicines, processed foods, non-alcoholic drinks, some dairy products, clothing, hotel stays, and certain building materials.
• Bringing the 28% rate down to 18% would help products like air conditioners, refrigerators, and cement. The insurance sector may also see a GST cut.
• Vehicles like small cars (with engines under 1,200 cc) and two-wheelers (up to 500 cc) would also benefit from the 28% to 18% rate cut. This could boost sales for companies like Maruti Suzuki and Hero MotoCorp.
• According to media reports, a new 40% GST rate will be introduced only for “sin goods,” like luxury items, high-end cars, and tobacco. However, this change will not significantly increase taxes on these products.
• Diamonds and gemstones, important for India’s exports, will keep their current tax rates. Petroleum products will still not be included under GST.

The Goods and Services Tax (GST) was first introduced in India on July 01, 2017, with a total of five tax slabs. GST is a nationwide merged tax system for several state and central taxes. The 18% GST rate brings in the most money for the government, making up about 65% of all GST collections.