Table of Contents
India has entered a new phase in its indirect tax regime. On 22 September 2025, the country moved from multiple GST slabs to simplified ones under what’s being called GST 2.0, led by Prime Minister Modi’s reform agenda. If you’ve been confused about pm modi gst, gst new slab, or how this affects your shopping bill — this guide is for you.
What is GST 2.0?
GST 2.0 is the upgraded version of India’s Goods and Services Tax system introduced in 2017. Under this reform:
The earlier four-tier system of 5%, 12%, 18%, and 28% has been drastically simplified.
Now, there are two primary slabs for most goods and services: 5% and 18%.
A 40% rate is introduced for sin and ultra-luxury goods.
The idea is to reduce complexity, lower tax disputes, make compliance easier, and (critically) make many everyday goods cheaper.
PM Modi’s Role & “Bachat Utsav”
Prime Minister Narendra Modi termed the rollout of GST 2.0 a “Bachat Utsav”, meaning a festival of savings for households.
His government has been pushing this reform as part of simplifying taxes and making everyday items more affordable. The GST Council (chaired by the Finance Minister) and state governments are implementing the revised slabs and notifying changes.
The new GST slab structure: What are the rates now?
Here’s how the slabs break down:
Slab Applies to… What’s new / changed
5% Essential & daily-use goods (food grains, certain dairy items, basic medicines, education products). Packaged foods, etc. Also many hygiene & consumer staples. Many items coming down from 12% / 18% to 5%, or becoming tax-free.
18% Standard goods & services (manufacturing, transport, many consumer durables). Some goods reduced from higher slabs (28%) down to 18%.
40% Sin goods + ultra luxury items (aerated drinks with sugar, cigarettes, pan masala), large cars/bikes, gambling, casinos, online gaming and race clubs. This is the premium/highest rate slab.
What Gets Cheaper?
Here are examples of things that will cost less or have lower GST under the new slab structure:
Food & dairy: UHT milk, chapati/parotta become tax-free. Butter, ghee, paneer, cheese now in 5% bracket.
Packaged foods: Biscuits, chocolates, pasta, cornflakes, namkeens etc move to 5%.
Dry fruits and sugar products: Almonds, cashews, dates, sugar & confectionery move from ~12% down to 5%.
Health & Education: Life-saving drugs, medical devices, books — tax-free or at 5%.
Consumer durables: Televisions, dishwashers, washing machines — from higher tax slabs to 18%.
Automobiles: Smaller cars & bikes (up to 350 cc) shift from 28% down to 18%.
Services: Hotel tariffs under ₹7,500 move from 12% to 5%. Economy air tickets taxed at 5%.
What Becomes Costlier?
Not everything enjoys a cut. Some items are more expensive under GST 2.0:
Sin & luxury goods: Tobacco, gutkha, aerated drinks with added sugar, pan masala — all taxed at 40%.
Coal: Its rate jumps from 5% to 18%.
Luxury cars & large bikes: If they exceed certain engine capacity or are premium, they’ll be taxed at 40%.
Leisure & gaming: Casinos, horse racing, lottery, IPL tickets — these fall into the 40% slab.
Will Consumers Actually Save? What About Price Pass-Through?
One of the biggest questions is: Will companies / retailers pass on these tax cuts to consumers?
Some automakers (Toyota, Mahindra, Maruti, Tata, Hyundai etc.) have already announced price cuts.
FMCG / dairy brands like Amul, Mother Dairy, HUL, P&G, Emami have pledged to reduce prices on items where possible.
But history makes people sceptical: earlier GST rate cuts didn’t always translate into lower MRP (maximum retail price) for consumers. Many manufacturers / retailers absorbed the cuts instead of reducing prices.
So, while the slab changes are clear, the savings you see will depend on how businesses react.
What the GST New Slab Means for You
Here are some practical takeaways, especially for everyday shoppers:
Keep your eyes on the labels: items showing “GST 5%” or “tax-free” are likely cheaper now.
For big purchases (cars, electronics), check with dealers for new pricing after the slab change.
If you’re a business owner, ensure your billing/point-of-sale systems are updated to the new rates.
For sin/luxury consumables, expect costs to rise; plan accordingly.
People Also Ask
Here are some common questions people might search, with answers.
What exactly is the new GST slab under PM Modi’s reform?
Under GST 2.0, there are three major slabs: 5% (for essentials/daily use), 18% (for standard goods & services), and 40% (sin & luxury goods). The older four-tier system is replaced.
Which items are completely tax-free after the GST slab changes?
Some essentials like certain food & dairy products (e.g. UHT milk, chapati/parotta), and basic medication or educational materials may be exempt or moved to the lowest GST slab.
Why did they introduce a 40% slab?
To tax luxury and sin goods more heavily — items that are considered non-essential or harmful (tobacco, aerated sugary drinks, gambling, large cars etc.) so that the burden shifts more to those consuming ‘premium’ goods.
Will GST rate cuts reduce inflation?
Possibly yes, especially for items that make up a large part of daily expenditure (food, dairy, hygiene). If businesses pass on the tax cuts, this can ease inflation for those goods. However, the effect depends on how much of the tax reduction is passed on versus absorbed.
FAQs
How does GST 2.0 affect small businesses?
Small businesses dealing in essentials may see reduced compliance burdens and possibly lower tax rates for their inputs and outputs. But they need to adapt billing systems, and ensure proper accounting under the new slab structure.
From when will the new slabs be applicable?
The GST 2.0 reforms became effective from 22 September 2025.
Are all states implementing the new slabs uniformly?
Yes — while the Central GST (CGST) rates have been notified, the State GST (SGST) notifications are being issued by individual states so that the combined tax regime reflects the new slabs.
Will luxury goods be taxed only at 40% or more?
Luxury / sin goods have been grouped under the 40% slab. Additional cesses or duties might also apply depending on product, but GST 2.0’s principal rate is 40% for those categories.
Do services also fall under these new slabs?
Yes. Many services which were earlier taxed at higher slabs are now at 5% or 18%. Some leisure / gaming / gambling services may fall under 40%.