Introduction to GST
The Goods and Services Tax (GST), which began on 1st July 2017, is India’s most important indirect tax reform since Independence. It combined various central and state taxes into one system, creating a national market, reducing tax overlaps, simplifying compliance, and increasing transparency. Over the past eight years, GST has gradually improved through changes in rates and digital upgrades, becoming the foundation of India’s indirect tax system.
 |
| Source : Economic Times |
The 56th meeting of the GST Council, led by Union Finance Minister Smt. Nirmala Sitharaman, has now approved new GST reforms aimed at improving life for everyday people and making it easier for everyone, including small traders and business owners. In his Independence Day speech, Prime Minister Narendra Modi announced, “The government will implement Next-Generation GST reforms, which will lower the tax burden on the common man. It will be a Diwali gift for you.” He mentioned that these reforms would directly benefit regular citizens, farmers, MSMEs, women, youth, and middle-class families, while supporting India’s long-term growth.
In line with the Prime Minister’s vision, the GST Council has put forward a reform package that includes a simpler two-tier tax system (5% and 18%) and significant rate cuts across various sectors. This package focuses on everyday people, labor-intensive industries, farmers, agriculture, health, and key economic drivers. These recommendations come from a consensus among all GST Council members to make GST easier, fairer, and better for growth. The new rates and exemptions will take effect on 22nd September 2025, providing timely relief for ordinary people, households, farmers, and businesses. The only exception will be certain goods such as cigarettes and chewing tobacco products like zarda, unmanufactured tobacco, and beedi, which will continue to follow the current GST and compensation cess rates. The new rates for these will be announced later, based on the settlement of all loan and interest liabilities related to the compensation cess.
GST reforms have a strong impact on consumer behavior by lowering prices for many goods and services. This increases buying intent and drives demand, particularly for essentials and durable goods. Consumers tend to be more price-sensitive and often compare deals across various platforms. They may delay some purchases, waiting for prices to stabilize, and they show a greater preference for value and affordability. Furthermore, lower GST rates can improve access to essential goods and services, leading to a better quality of life. This shift encourages spending on more affordable and necessary items.
Key Changes in Consumer Behavior:
- Increased Purchase Intent and Demand: Lower GST rates translate to lower prices, which increases consumers' disposable income and encourages them to buy more items sooner rather than later.
- Price Sensitivity: Consumers become more aware of price changes and actively seek out the best deals and discounts offered by businesses.
- Waiting and Comparison Behavior: Some consumers may delay purchases until prices stabilize or better promotional offers become available after the initial GST adjustment period.
- Shift to Value and Affordability: There is often a noticeable shift in preference from luxury or premium goods to more mass-market and mid-segment products, emphasizing value for money.
- Digital Payment and Online Shopping Trends: The complexity of GST and potential online savings can encourage consumers to engage with e-commerce platforms.
- Focus on Compliant Businesses: Consumers may show a greater preference for businesses that are transparent about passing on GST benefits and demonstrate compliance with the new tax structure.
- Increased Demand for Essentials: With GST cuts on essentials, consumers might increase their consumption of these goods, improving household savings and ease of living.
Factors Influencing the Impact:
- Pass-Through of Savings: The extent to which businesses pass on tax reductions to consumers directly impacts demand.
- Economic Conditions: The overall economic environment and the presence of other stimulating factors, like festive seasons, can amplify the positive effects of GST reforms on consumption.
- Product Categories: Essential goods and consumer durables are likely to see a more direct impact on demand compared to less essential or luxury items, which may experience a sharper fall or slower recovery.
Food and
Household Sector
Reforms help households save money by lowering taxes on everyday essentials and packaged foods. Cutting the GST rate on air conditioners, dishwashers, and TVs is a win-win. It makes things more affordable for consumers and supports India’s electronics manufacturing.
- Products like Ultra-High Temperature (UHT) milk, pre-packaged and labeled chena or paneer, and all Indian breads will see zero rates.
- Household goods like soaps, shampoos, toothbrushes, toothpaste, and tableware will now cost 5%.
- Food items such as packaged namkeens, bhujia, sauces, pasta, chocolates, coffee, and preserved meat are reduced from 12% or 18% to 5%.
- Consumer durables, like TVs (LCD/LED) over 32 inches, air conditioners, and dishwashers, drop from 28% to 18%.
Home
Building & Materials
The reduction in GST rates on cement and key construction materials is poised to significantly strengthen the housing sector. By lowering the overall cost of homes and infrastructure projects, this move will make house ownership more affordable while stimulating demand in real estate and generating new employment opportunities in the construction industry.
- Cement: reduced from 28% to 18%
- Marble/Travertine blocks, Granite blocks, Sand-lime bricks: reduced from 12% to 5%
- Bamboo flooring/joinery, Wooden packing cases & pallets: reduced from 12% to 5%
Automobile
Sector
The clearer classification of vehicles and auto parts under revised GST rates is expected to reduce disputes, enhance compliance, and boost growth in India’s automotive manufacturing and exports. The rationalization will also make vehicles more affordable and strengthen competitiveness in global markets.
- Small cars and two-wheelers (≤350cc): reduced from 28% to 18%
- Buses, trucks, three-wheelers, and all auto parts: reduced from 28% to 18%
Agriculture
sector
Reduced GST rates on agricultural machinery and bio-pesticides will lower input costs for small farmers and promote sustainable farming practices. At the same time, correcting the inverted duty structure on fertilizer inputs is expected to boost domestic fertilizer production, cut import dependence, and strengthen self-reliance in agriculture.
- Tractors: reduced from 12% to 5%; tires and parts: 18% to 5%
- Harvesters, threshers, sprinklers, drip irrigation systems, poultry & bee-keeping machines: 12% to 5%
- Bio-pesticides and natural menthol: 12% to 5%
Service Sector
Lower GST on
hotel stays, gyms, salons, and yoga services will reduce costs for citizens,
improve access to wellness, and give a fillip to the hospitality and service
industries.
- Hotel stays up to ₹7,500/day from 12% to
5%.
- Gyms, salons, barbers, yoga GST cut from 18%
to 5%.
Toys, Sports
& Handicrafts
Fixing duty
structures for man-made fibres will improve the competitiveness of
the textile industry, especially in exports. The inverted duty
structure in the sector has been corrected with reduction of GST rate on
manmade fibre from 18% to 5% and manmade yarn from 12% to 5%.
Further, lower
GST rates on handicrafts will support artisan livelihoods, preserve India’s
cultural heritage, and promote rural economic growth.
- Handicraft idols & statues: 12% → 5%.
- Paintings, sculptures: 12% → 5%.
- Wooden/metal/textile dolls & toys: 12%
→ 5%.
Education Sector
Education has become more affordable with
exercise books, erasers, pencils, crayons and sharpeners moving to 0% GST. This
directly supports families and students, ensuring lower costs of learning
materials.
Geometry boxes, school cartons, trays: 12% → 5%.
Medical Sector
Reduced rates on medicines and medical devices will improve access to
healthcare and support domestic manufacturing in the pharma and medical
equipment sectors.
- 33 life-saving
drugs, diagnostic kits: 12% → 0%.
- Other medicines
including Ayurveda, Unani, Homoeopathy: 12% → 5%.
- Spectacles and
corrective goggles: 28% → 5%.
- Medical oxygen,
thermometers, surgical instruments: 12–18% → 5%.
- Medical, dental, and
veterinary devices cut from 18% to 5%.
Health and life Insurance
GST exemptions on life and health insurance premiums will expand
financial protection and support the vision of Mission Insurance for
All by 2047.
- GST exemption on
premiums for individual life insurance, health insurance, floater plans,
and senior citizen policies.
In addition to the above major reforms, several other items have also
seen GST rate rationalisation. These include household utilities, smaller
consumer products, and industrial inputs.
Reference
1. Government of India (Press Information Bureau), Posted On: 04 SEP 2025 6:10PM2. https://www.pib.gov.in/PressNoteDetails.aspx?
3. NoteId=155151&ModuleId=3#:~:text=Next%2DGen%20GST:%20Benefits%20for,security%20and%20access%20to%20healthcare.
