From kitchen to cars: GST revamp slashes rates on household and auto goods, luxury items face 40 per cent tax

In a landmark overhaul of India’s indirect taxation, Finance Minister Nirmala Sitharaman on Wednesday, September 3 announced sweeping reforms under a simplified “GST 2.0,” introducing a two-slab rate structure—the biggest change since the Goods and Services Tax was rolled out in 2017.

Under the revamped framework, consumer essentials, medicines, and automobiles will see significant tax cuts, while luxury and sin goods have been placed under a newly created 40% slab to balance revenue collections.

“These reforms have been carried out in a spirit of consensus. There shall be two slabs and we are addressing the issue of compensation cess. Rate rationalisation was a unanimous agenda,” Sitharaman said after chairing the GST Council meeting.

Common household items such as hair oil, toilet soaps, shampoos, toothbrushes, kitchenware, and tableware have been moved to the 5% bracket from the earlier 18%. UHT milk, paneer, and Indian breads have been fully exempted from GST, down from 5% to zero.

Packaged food products like namkeen, bhujiya, sauces, pasta, cornflakes, butter, and ghee will now be taxed at 5%, promising immediate relief to households and lowering kitchen expenses.

Healthcare costs are also set to fall, with 33 life-saving drugs exempted from tax and spectacles for vision correction slashed from 28% to 5%.

The reforms also extend to automobiles and durable goods. Small cars, motorcycles below 350cc, three-wheelers, and passenger vehicles will now attract 18% GST instead of 28%. Petrol cars under 1200cc and diesel cars under 1500cc are also set to become cheaper under the same rate.

Air conditioners, dishwashers, and all televisions will uniformly attract 18% GST. Larger vehicles such as buses, trucks, and ambulances, along with auto parts, have been rationalised to the same slab.

Cement, a key component in construction, will now be taxed at 18%, down from 28%, significantly reducing housing and infrastructure costs.

To maintain fiscal stability, the GST Council has introduced a special 40% slab for sin and luxury goods. This includes tobacco products, pan masala, gutkha, aerated drinks with added sugar, caffeinated beverages, yachts, personal aircraft, and high-end automobiles such as mid- and large-sized cars and bikes above 350cc.

Handicrafts, intermediate leather goods, marble and granite blocks, as well as natural menthol—widely used in FMCG and pharma—have all seen reductions to 5% from 12%.

Economists believe that the reforms could ease inflationary pressures, spur demand, and provide a much-needed boost to core industries like FMCG, autos, and housing. However, experts caution that the long-term revenue impact must be closely monitored to prevent fiscal imbalances.