GST reform 2025: Education, meds at 5%; TVs, ACs at 18%; online gaming, tobacco at 40%

GST reform 2025: The Centre has put forward a sweeping reform of the Goods and Services Tax (GST) structure, aiming to simplify the current multi-rate system. As per government sources, the proposal suggests consolidating most goods under two main slabs — 5% and 18% — while reserving a steep 40% levy for a limited set of “sin” or luxury items such as tobacco and online gaming.

If approved, this would mark the most significant restructuring of GST since its rollout in 2017. The reform seeks to ease compliance, lower costs for households and businesses, and rationalise anomalies in the existing framework. In a statement, the Finance Ministry stated: "Rationalising tax rates to ease the burden on households and support farmers, women, students, and the middle class has been identified as a core priority of the next phase of reforms.”

Major shifts in GST rates

Nearly all products now taxed at 12% — including several household essentials — are expected to move to 5%. Similarly, about 90% of items in the current 28% bracket will fall to 18%. Only luxury and demerit goods will stay at higher levels. Consumer durables such as televisions, refrigerators, air conditioners, and washing machines would shift from 28% to 18%, benefiting middle-class buyers.

Essential categories like food, medicines, education, and basic-use goods are proposed to remain exempt or taxed at just 5%. In agriculture, GST on equipment such as sprinklers and farm machinery could drop from 12% to 5%. Insurance services may also see a sharp cut from 18% to 5% or even Nil, while medical devices and drugs are expected to attract lower rates to enhance healthcare affordability.

Exemptions

Petroleum products, as before, will stay outside the GST regime. Special categories such as diamonds (0.25%) and gold or silver (3%) will also remain unchanged. Meanwhile, a correction in inverted duty structures has been proposed for textiles and fertilisers.

Revenue outlook

Currently, around 65% of GST revenue comes from the 18% slab, 11% from 28%, 5% from 12%, and 7% from 5%. The government expects any short-term revenue loss from lower rates to be offset by improved compliance and an expanded tax base, a CNBC TV18 report stated.

Next steps

The Centre has sent its proposal to three Groups of Ministers (GoMs) — on rate rationalisation, compensation, and insurance. After their review, recommendations will be forwarded to the GST Council, which holds the authority to approve, alter, or reject the plan. Depending on deliberations, the Council could take up the matter as early as September or October.

If cleared, the reform will deliver wide-ranging benefits for households, farmers, MSMEs, and key industries. Coming just ahead of the festive season, the overhaul is expected to ease inflationary pressures while making India’s indirect tax regime simpler and more equitable.