- GST slabs reduced from four to two main rates: 5% and 18%, making taxation simpler and lowering prices.
- Introduction of a special 40% GST slab on sin and luxury goods like tobacco and high-end vehicles.
- GST exemption on individual health and life insurance premiums to lower costs for policyholders.
Goods and Services Tax (GST) Reform announced by the Central Government brings a major GST Diwali Bonanza with big rate cuts and relief on insurance premiums. This reform aims to simplify the tax system, boost consumption, and support economic growth. The changes include reducing GST slabs, introducing a special high tax rate for luxury and sin goods, and exempting health and life insurance premiums from GST, helping both consumers and businesses.
The GST Council has approved major changes to GST rates, cutting the number of slabs and lowering rates on many commonly used items. These changes are expected to reduce prices, increase consumption, and make compliance easier for businesses.
GST Rate Simplification: From Four Slabs to Two
The GST system will now have only two main slabs: 5% and 18%. The previous 12% and 28% slabs have been removed. This simplification is meant to reduce the tax burden on consumers and make the taxation process easier for businesses.
Special 40% Slab for Sin and Luxury Goods
A new 40% GST slab has been added for sin and luxury goods such as tobacco products, super luxury items, aerated drinks, mid-sized and large cars, motorcycles over 350cc, private aircraft, and yachts. This high rate aims to keep government revenue steady and discourage consumption of these items. However, tobacco products like gutkha and pan masala will still have compensation cess until state loans are paid off.
GST Exemption on Health and Life Insurance Premiums
One of the most welcomed changes is the exemption of GST on individual health and life insurance premiums. Previously taxed at 18%, this exemption will lower the cost of insurance policies, making them more affordable for policyholders.
Boosting the Economy Through GST Reforms
These GST reforms are expected to increase consumption, improve ease of doing business, and support GDP growth amid global economic uncertainties. The government estimates a positive effect of 20-30 basis points on nominal GDP growth because of these changes.
Ease of Doing Business Measures Under GST 2.0
Along with rate simplification, procedural changes have been introduced to make GST compliance easier. These include faster GST registration (within three days for low-risk ventures), quicker refunds (within seven days for export-focused sectors), and simpler registration for businesses with tax liabilities under Rs 2.5 lakh per month. Changes in the place of supply rules will also help IT services and global capability centres claim input tax credits more easily.
Fixing the Inverted Duty Structure
The reforms address the inverted duty structure by adjusting tax rates to reduce the buildup of input tax credit. This fix encourages domestic value addition and solves classification issues, benefiting sectors like textiles, chemicals, fertilisers, and pharmaceuticals.
| Feature | Details |
|---|---|
| Effective Date | 22 September 2025 (Start of Navratri) |
| GST Slabs | 5%, 18%, and special 40% slab for sin/luxury goods |
| GST on Health & Life Insurance | Exempted (previously 18%) |
| Refund Timeline for Export Sectors | Within 7 days |
| GST Registration Timeline | 3 days for low-risk businesses |
| Official GST Website | https://www.gst.gov.in |
These reforms mark a big step towards a simpler, clearer GST system that helps consumers, businesses, and the economy. You can expect to see lower prices on many goods and services, easier tax compliance, and more affordable insurance premiums starting this festive season.