From milk to medicines: Next-Gen GST aims to bring relief to households, boost economy

In a sweeping reform that promises to touch every household and business in India, the GST Council has unveiled the most ambitious overhaul of the Goods and Services Tax (GST) since its launch in 2017.

Branded as the “Next-Gen GST,” the new regime collapses the complex multi-slab structure into a simpler two-rate system and slashes taxes across essentials, automobiles, housing, healthcare, education, and services.

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The most significant shift comes in the form of a simplified two-slab structure of 5% and 18%, replacing the earlier four-slab system of 5, 12, 18, and 28%. To ensure revenue balance, luxury and ‘sin’ goods including tobacco, pan masala, aerated drinks, high-end cars, yachts, and private aircraft will be taxed at 40%.

The reforms promise sweeping relief to households, businesses, and farmers through wide-ranging tax cuts and a simpler two-rate structure.

Everyday essentials such as soaps, shampoos, toothpaste, toothbrushes, and bicycles will now be taxed at 5%, while UHT milk, paneer, and Indian breads have been moved to the zero-tax category.

Packaged foods including namkeens, sauces, chocolates, and coffee have seen rates slashed from 12 or 18% to 5%. Larger consumer durables such as televisions above 32 inches, air-conditioners, and dishwashers, earlier under the highest 28% bracket, will now attract only 18% GST.

The construction and housing sectors are set to benefit from a sharp reduction in building material taxes. Cement has been cut from 28 to 18%, while granite, marble, bamboo flooring, and wooden joinery have been lowered to 5%. These changes are expected to reduce housing costs, and revive real estate demand.

Another key sector that witnessed reform is the Automobiles as small cars and two-wheelers with engine capacity up to 350cc will now face an 18% GST instead of 28%. Buses, trucks, three-wheelers, and auto parts too have moved from 28 to 18%.

For the agriculture sector, GST Council decided that the tax on tractors, harvesters, sprinklers, drip irrigation systems, and poultry and bee-keeping equipment all be reduced to 5%.

Tires, spare parts, and bio-pesticides have also been brought under the lower 5% bracket, cutting farm input costs and encouraging sustainable farming practices.

Significantly, 33 life-saving drugs and diagnostic kits have been exempted from GST entirely, while other medicines including Ayurveda, Unani, and Homeopathy have been reduced to 5%. Medical oxygen, thermometers, and surgical instruments have all been brought down to 5%, while health and life insurance premiums are now fully exempt, a step aligned with the government’s Mission Insurance for All by 2047.

Essential learning materials like exercise books, pencils, crayons, and erasers are now tax-free, while geometry boxes and school cartons have been cut to 5%. Handicrafts, toys, and cultural goods such as idols, statues, and paintings have all moved from 12 to 5%, alongside a correction in textile duties that lowers GST on man-made fibres and yarn to 5%. These changes are expected to revive artisan livelihoods and enhance export competitiveness.

The service sector too has been granted relief, with hotel stays up to Rs 7,500 a night now taxed at 5% and gyms, salons, and yoga services brought down from 18 to 5%.

While the government estimates a revenue impact of Rs 48,000 crore, economists argue that the loss will be offset by stronger demand, a wider tax base, and improved compliance under the simplified two-slab structure.

Effective from September 22, 2025, with tobacco and related goods notified later, the Next-Gen GST reforms mark the most significant overhaul of the system since its inception, the Ministry of Finance said in a statement.

By reducing costs on essentials, expanding social protection through insurance and healthcare exemptions, and boosting competitiveness across industries, the reforms are being hailed as a transformative step that will bring relief to citizens and momentum to the economy, it added.