'Historic Diwali gift' for common man, students, farmers: How new GST reforms will impact you?

In a sweeping tax reform, the GST Council, led by finance minister Nirmala Sitharaman, has announced sharp reductions in Goods and Services Tax (GST) rates across a wide range of items — from daily essentials and healthcare products to education supplies, farm equipment and automobiles. The rationalisation is part of the next-generation GST reforms which will see only two slabs at 5% and 18% while the 12% and 28%. The changes will be effective September 22.

The move is being billed as a “historic Diwali gift” to citizens and businesses, aimed at making everyday living cheaper and boosting economic activity.

GST on several household products has been slashed from higher slabs to just 5%. Hair oil, shampoo, toothpaste, toilet soaps, shaving cream and toothbrushes will now attract 5% GST, down from 18%. Rates on butter, ghee, cheese, dairy spreads, packaged namkeens, mixtures and utensils have been cut from 12% to 5%. Feeding bottles, clinical diapers and sewing machines also move to the lower slab.

Healthcare has seen significant concessions. Individual health and life insurance premiums, earlier taxed at 18%, are now exempt. Medical-grade oxygen, diagnostic kits, glucometers, test strips and corrective spectacles will attract only 5% GST. Thermometers too shift from 12% to 5%.

Hon’ble Prime Minister Shri @narendramodi announced the Next-Generation GST Reforms in his Independence Day address from the ramparts of Red Fort.

Working on the same principle, the GST Council has approved significant reforms today. These reforms have a multi-sectoral and… pic.twitter.com/NzvvVScKCF — Nirmala Sitharaman Office (@nsitharamanoffc) September 3, 2025

Education materials have been fully exempted. GST on maps, charts, globes, exercise books, notebooks, pencils, sharpeners, crayons, pastels and erasers has been reduced from 12% or 5% to nil.

To aid farmers, the government has slashed GST on tractor tyres and parts from 18% to 5%, while tractors themselves drop from 12% to 5%. Bio-pesticides, micro-nutrients, drip irrigation systems and agricultural machinery will also now fall in the 5% slab.

Vehicles have also seen major rationalisation. Petrol, diesel and CNG cars in specified categories, earlier taxed at 28%, will now attract 18%. Three-wheelers, motorcycles up to 350cc and commercial vehicles for goods transport too fall to the 18% bracket.

Consumer durables will see noticeable price drops. Air conditioners, televisions above 32 inches (including LED and LCD), monitors, projectors and dishwashers have all been brought down from 28% GST to 18%.

Alongside rate cuts, the government has announced procedural reforms including automatic registration within three working days, provisional refunds through system-based risk evaluation, and simplification of tax credits.

PM Modi said that he spoken about the government's intention to bring the next-Generation reforms in GST during his Independence Day speech. "The Union Government had prepared a detailed proposal for broad-based GST rate rationalisation and process reforms, aimed at ease of living for the common man and strengthening the economy.

"Glad to state that the GST council, comprising the Union and the States, has collectively agreed to the proposals submitted by the Union Government on GST rate cuts & reforms, which will benefit the common man, farmers, MSMEs, middle-class, women and youth. The wide ranging reforms will improve lives of our citizens and ensure ease of doing business for all, especially small traders and businesses," he said.

Prime Minister Narendra Modi had earlier announced that the next generation of GST reforms are a "gift for every Indian this Diwali", adding that prices of several essential items will be reduced.

The government emphasised that the new “Next-Gen GST” structure aims to simplify compliance, lower the tax burden, and fuel growth across sectors.