GST 2.0 Explained: What Gets Cheaper, What Gets Costlier in 2025

GST 2.0 Explained: What Gets Cheaper, What Gets Costlier & What It Means for You

India is stepping into a new phase of taxation with GST 2.0, rolling out from 22nd September 2025. Finance Minister Nirmala Sitharaman has called this reform simpler, fairer, and more people-friendly. But what exactly changes for ordinary citizens? This blog explains the new GST slabs, what items become cheaper, which ones costlier, how health insurance is impacted, and how businesses are reacting.

The New GST Slabs

Earlier GST had five slabs (0%, 5%, 12%, 18%, 28%). Now GST 2.0 introduces only four clear categories:

• 0% – Essentials like medicines, school items, food, health & life insurance.
• 5% – Household goods like soaps, cooking oil, biscuits, butter, textiles.
• 18% – Standard rate for cement, electronics, cars, and most services.
• 40% – Luxury and demerit goods such as luxury cars, yachts, tobacco, and gutkha.

What Gets Cheaper

• Insurance: Health and life insurance premiums now attract 0% GST instead of 18%.
• Medicines: Life-saving drugs become tax-free, and other essential medicines drop to 5%.
• Groceries: Milk, bread, paneer, notebooks, and pencils are tax-free. Soaps, ghee, biscuits, and dry fruits at 5%.
• Travel: Economy air tickets are now taxed at 5%, hotels under ₹7,500/night also at 5%.
• Vehicles & Appliances: Small cars, bikes, TVs, refrigerators, and cement now taxed at 18% instead of 28%.

What Gets Costlier

• Clothing above ₹2,500 → 18% (earlier 12%).
• Coal → higher GST, leading to possible increase in electricity bills.
• Luxury cars, yachts, jets → 40%.
• Tobacco, gutkha, and pan masala remain in the cess category.

Pros and Cons for Citizens

Positives:

• Lower premiums for health and life insurance.
• Cheaper medicines and healthcare support.
• Savings on groceries and everyday items.
• Affordable small cars, electronics, and home appliances.
• Simplified tax structure.

Drawbacks:

• Branded clothing becomes more expensive.
• Electricity bills may rise due to coal GST.
• OTT, gaming, and entertainment continue at 18%.
• States worry about revenue loss and may introduce local cesses later.

A Family Example – The Sharma Household

Here’s how one middle-class family saves under GST 2.0:

• Insurance premium: ₹18,000 → saves ₹3,240
• Medicines: ₹2,000/month → saves ₹2,400 annually
• Groceries → saves about ₹1,200 annually
• Travel → saves about ₹1,500 per year

Total annual savings ≈ ₹7,000+

How Businesses Are Reacting

Insurance Companies: Happy about higher policy sales, but not pleased about losing input tax credit on expenses like rent and IT systems.

Hospitals: Expect more insured patients but face higher equipment costs without credits.

Pharma: Welcome higher sales volume but worry about shrinking profit margins.

Industrialists: Like the simpler tax slabs but worry about revenue pressure leading to new surcharges in future.

Before vs After: Quick Comparison

Item	Old GST	New GST
Health insurance	18%	0%
Life-saving medicines	5–12%	0%
Groceries & milk	5–12%	0–5%
Toiletries	18%	5%
Small cars	28%	18%
TVs, refrigerators	28%	18%
Apparel > ₹2,500	12%	18%
Luxury cars, yachts	28%+	40%
Coal	5%	18%

Final Thoughts

GST 2.0 is a big step forward. For the first time, ordinary citizens clearly benefit from a tax reform. Families will save on insurance, medicines, and groceries. Businesses enjoy simpler compliance but worry about lost input credits. States are concerned about revenue gaps.

In simple words, GST 2.0 feels less like “one nation, one tax” and more like “one nation, fairer tax” — with the middle class as its biggest winner.

End of article 

Disclaimer
This content is for general information only, not professional tax, legal, or financial advice. Please consult official sources or a qualified advisor before making decisions.

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