India is set to roll out GST 2.0 luxury goods taxation from September 22, 2025, simplifying the system and reshaping how essentials and premium products are taxed. The new structure retains just two main slabs—5% and 18%—along with a new 40% rate on luxury and sin goods.
GST 2.0 Luxury Goods Under 40% Slab
One of the biggest changes is the creation of a 40% tax bracket. This will cover luxury cars, high-end motorcycles, aerated and caffeinated drinks, and other premium non-essential products. Tobacco items such as cigarettes and gutka will continue under the 28% slab with cess until loan obligations are cleared, after which they too may move into the new 40% category.
Impact of GST 2.0 on Essentials
For ordinary households, GST 2.0 luxury goods reform means essentials will become cheaper. Daily-use items like toothpaste, soaps, shampoos, and hair oil will fall under the 5% bracket, down from 12–18% earlier. Processed foods, chocolates, cooking oil, and certain medicines will also benefit. Some staples such as bread and paneer will even be exempt from GST.
Standard Goods at 18%
Products such as televisions, air conditioners, small cars, and two-wheelers will now attract 18% GST, reduced from the earlier 28% slab. This will likely encourage demand for consumer durables during the festive season, boosting retail and manufacturing sectors.
Relief and Broader Impact
A major relief for families comes with life and health insurance policies, which are now fully exempt from GST. The government hopes that GST 2.0 will not only improve affordability but also increase compliance for businesses. Analysts say the reform could trigger higher consumption, though it may cost the exchequer nearly ₹48,000 crore in lost revenue.
By simplifying the system and easing prices on essentials, while taxing luxury consumption higher, GST 2.0 luxury goods reform marks a significant step in India’s tax evolution.
