 "Why the GST reform is a festive bonanza for the common man")
India’s indirect tax system is undergoing its most significant overhaul since the Goods and Services Tax (GST) was first implemented eight years ago.
In a landmark decision, the GST Council, led by Union Finance Minister Nirmala Sitharaman, approved sweeping changes to simplify the tax structure and bring immediate relief to households, farmers, and small businesses.
These changes will take effect from September 22, 2025, just ahead of the festive season.
The announcement comes at a time when the Indian economy faces multiple challenges, including slowing global trade and the recently imposed 50 per cent tariffs by United States on a wide range of Indian exports.
The government hopes that these GST reforms will help boost domestic consumption and counterbalance external economic shocks.
How the GST reform is a boon for the common man
The most fundamental change in this reform package is the restructuring of GST slabs. The earlier four-tier structure of 5 per cent, 12 per cent, 18 per cent, and 28 per cent has been replaced with two standard rates: 5 per cent and 18 per cent.
In addition, a special 40 per cent category has been created to tax luxury and sin goods at a higher level.
What this means for prospective car buyers
For regular cars and two-wheelers, there is notable relief. Vehicles classified as small cars, defined as those with petrol engines up to 1200 cc or diesel engines up to 1500 cc and a maximum length of four metres, will now be taxed at 18 per cent instead of the earlier 28 per cent.
This includes popular models like the Maruti Suzuki Alto, Swift, Fronx, Tata Punch, and Hyundai i10, making them more affordable for the middle-class buyer.
Larger cars and premium models will fall under the 40 per cent category, maintaining a higher tax rate for luxury purchases.
What this means for your households
One of the key objectives of this reform was to ease the financial burden on ordinary families, especially the middle class, which plays a vital role in driving consumption.
Finance Minister Sitharaman highlighted this priority when she said, “These reforms have been carried out with a focus on the common man. Every tax on the common man’s daily use items has gone through a rigorous review and in most cases the rates have come down drastically… Labour-intensive industries have been given good support. Farmers and the agriculture sector, as well as the health sector, will benefit.”
The most immediate benefit will be visible in food items and kitchen staples, which constitute a significant portion of household budgets.
Products like frozen parathas, chapatis, khakhra, pizza bread, and paneer will now be completely exempt from GST.
Ultra-high-temperature (UHT) milk, which has a longer shelf life, will now also be tax-free, alongside other dairy milk products that were already exempt.
Plant-based milk and soya milk beverages will have their GST rate reduced to 5 per cent, making alternative milk products more accessible.
Butter, ghee, jams, fruit jellies, sauces, packaged namkeens, and bhujia will move from the 12-18 per cent range to just 5 per cent.
Breakfast cereals such as cornflakes, biscuits, chocolates, cocoa products, dry fruits, and dates will also be taxed at 5 per cent.
These reductions are aimed at lowering monthly grocery expenses, especially as food inflation has been a concern in recent months. By making these everyday items more affordable, the government hopes to boost consumption and improve household savings.
Personal care products and common household goods are also part of this reform package.
Shampoos, hair oils, toothpaste, combs, and other essential toiletries will now be taxed at 5 per cent instead of 18 per cent.
Tableware, kitchenware, umbrellas, bamboo furniture, and bicycles will also move to the 5 per cent slab.
For consumers, this means noticeable savings on products they buy regularly, as well as on big-ticket purchases during the upcoming festive season.
What this means for your festive shopping
The festive season, especially Navratri and Diwali, is traditionally a period of high consumer spending. Families tend to purchase large appliances and electronics during this time due to seasonal discounts and promotions.
Under the new GST regime, appliances like air conditioners, refrigerators, washing machines, and large-screen televisions will be taxed at 18 per cent instead of the previous 28 per cent, making these products more affordable.
This reduction is expected to encourage bulk buying and stimulate demand for consumer durables, providing a boost to manufacturers and retailers who have been facing challenges due to subdued demand and international trade disruptions.
What this means for your health & insurance
The GST Council has removed GST on individual life and health insurance premiums, which were previously taxed at 18 per cent.
Sitharaman explained the impact of this decision, “Exemption of GST on all individual life insurance policies, whether term life, ULIP, or endowment policies, and reinsurance thereof, will make insurance affordable for the common man and increase the insurance coverage in the country.”
This reform is expected to encourage first-time buyers to invest in health and life insurance, expanding coverage and improving financial resilience among families.
Additionally, over 30 specialised drugs, including critical treatments for cancer and rare diseases, have been made completely GST-free.
This is a major relief for patients requiring expensive, life-saving medications, as it will significantly reduce out-of-pocket healthcare expenses.
How farmers get targeted support with the GST reform
Recognising the importance of the agricultural sector, the government has introduced GST relief measures specifically aimed at reducing costs for farmers.
Tractors and tractor parts will now fall under the 5 per cent slab, down from 12 per cent and 18 per cent respectively.
Bio-pesticides, micronutrients, drip irrigation systems, and various agricultural machines have also been shifted to the 5 per cent category.
These changes will help farmers save on essential equipment and inputs, boosting productivity and improving overall profitability in the sector. The move is especially timely given the external pressures facing Indian agriculture due to global trade disruptions.
Prime Minister Narendra Modi has repeatedly highlighted his government’s commitment to protecting farmers and small entrepreneurs.
With the US-India trade deal reportedly stalled due to India's reluctance to compromise on it's agriculture sector, Modi last month declared, “For us, the interest of our farmers is our top priority. India will never compromise on the interests of farmers, fishermen, and dairy farmers. I know we will have to pay a heavy price for it and I am ready for it. India is ready for it.”
At his Independence Day address, Modi reiterated this stance, “Farmers, fishermen, cattle rearers are our top priorities. Modi will stand like a wall against any policy that threatens their interests. India will never compromise when it comes to protecting the interests of our farmers.”
Later, at a rally in Ahmedabad last week, he reassured the agricultural and small business community, “My government will never let any harm come to the small entrepreneurs, farmers, and livestock rearers. No matter how much pressure comes, we will keep increasing our strength to withstand it.”
What the GST reform means for students
Students and families will also see tangible benefits under the new GST system.
A wide range of educational materials has been granted a full exemption from GST, including maps, charts, globes, notebooks, pencils, crayons, sharpeners, pastels, and erasers.
This move is expected to make education more affordable and accessible, particularly for students from lower-income households.
It aligns with the government’s focus on strengthening human capital and supporting young learners.
What the GST reform means for the rich
Previously, many automobiles were taxed at 28 per cent, and luxury cars faced not only this high GST rate but also an additional compensation cess that ranged between 17 per cent and 22 per cent, depending on the vehicle’s size and engine capacity.
This meant that premium vehicles often carried an overall tax burden of 45 per cent to 50 per cent, making them significantly more expensive compared to global markets.
With the removal of the compensation cess and the introduction of a streamlined structure, luxury vehicle prices are expected to come down slightly.
Brands such as Mercedes-Benz, BMW, Jaguar Land Rover (JLR), and Audi will now see their models taxed under the new system, which is expected to encourage more competitive pricing in the high-end segment.
Apparel and clothing accessories costing above Rs 2,500 will now be taxed at 18 per cent, up from 12 per cent, impacting international brands such as Marks and Spencer, Levi Strauss, and Zara.
The GST on coal has been increased sharply from 5 per cent to 18 per cent, which may have implications for power generation and industrial costs.
Fizzy drinks, including popular beverages produced by companies like PepsiCo and Coca-Cola, will continue to be taxed at 40 per cent, the same rate applied to tobacco products, including cigarettes.
These measures are designed to create a more progressive tax structure, where luxury and non-essential items contribute a greater share of tax revenue.
Why this GST reform was necessary
The GST overhaul comes against a backdrop of international economic strain. On August 27, 2025, the United States imposed 50 per cent tariffs on Indian exports, affecting goods worth $60.2 billion, which represents 55 per cent of India’s total merchandise shipments to the US and about 18 per cent of its overall exports.
The affected sectors include textiles, seafood, gems, jewellery, and leather — industries that are heavily reliant on labour and have deep linkages with small and medium enterprises.
Economists project that these tariffs could reduce India’s GDP growth by 0.4 per cent to 0.6 per cent in FY26. This would have knock-on effects on employment, private investment, and export competitiveness.
The seafood industry, particularly shrimp exporters, has already felt the impact. Prices have reportedly dropped by $0.60-$0.70 per kilogramme due to duties exceeding 60 per cent, threatening the livelihoods of coastal communities.
Similarly, production hubs for textiles and gems, such as Tirupur, Noida, and Surat, are facing supply chain disruptions and the risk of job losses.
In this challenging environment, the GST reforms are positioned as part of a broader economic strategy to strengthen domestic demand and shield vulnerable sectors from external shocks.
What next for the common man in India
Earlier this year, the government announced that annual income up to Rs 12 lakh would be tax-free.
With the latest GST reforms, individuals earning up to Rs 12.75 lakh annually will now have no income tax liability, providing substantial relief to the middle class.
When combined with the lower indirect taxes on essential goods and services, these measures are expected to significantly increase disposable income.
This is particularly relevant ahead of the festive season, when consumer spending tends to peak.
Modi summed up in his social media message, “The wide-ranging reforms will benefit… the common man, farmers, MSMEs, middle-class, women and youth.”
With state elections in Bihar approaching and global economic uncertainties looming, the GST overhaul comes at a time when businesses are being urged to renew focus on inclusive growth.
With inputs from agencies
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