The Goods and Services Tax has been a landmark indirect tax reform since the Independence of India in 1947. Although many critics have expressed their views on the complex structure and high compliance burdens, the  56th meeting of the GST Council, chaired by Union Finance Minister Smt. Nirmala Sitharaman has now approved Next-Gen GST reforms, with a focus on improving the lives of the common man and ensuring ease of doing business for all, including small traders and businessmen. 

Earlier this month, on Independence PM Modi had hinted at the introduction of something new in the taxation structure, stating, “The government will bring Next-Generation GST reforms, which will bring down tax burden on the common man. It will be a Diwali gift for you.” And it seems like the Next-Gen GST reforms actually live up to the expectations of the general public.

The New 2 Tier Tax Slab

One of the greatest shortcomings of the GST was the complex structure and the multiple tax slabs (5%, 12%, 18%, 28%). This confused the taxpayers and overcomplicated the taxation process.

This shortcoming has been addressed in the Next-Gen reforms, with the introduction of the new 2-tier tax slab (5% and 18%) with the aim of making taxation more transparent and easier to follow. At the same time, a 40% on luxury and sin goods such as pan masala, tobacco, aerated drinks, high-end cars, yachts, and private aircraft ensures fairness and revenue balance. Alongside, registration and return filing have been simplified, refunds made faster, and compliance costs reduced, easing the burden on businesses, especially MSMEs and startups.

Sector-Wise GST Breakdown

Relieving the general public of tax burdens and rationalising tax gaps was one of the top priorities of the Government during the drafting and implementation of the GST reforms. This is clearly evident through the significant reductions in GST in the food, health, education, and sports sectors. 

Whereas hazardous and sin goods like cigarettes, tobacco, and alcohol have been held on the higher end of the GST percentages. This was done to increase the demand for non-hazardous goods and decrease the use of hazardous ones, as high costs will prevent citizens from overspending on such products. 

1. Health and Medicine

The Government aims to make healthcare and medication accessible to all citizens. Reduced rates of 33 life-saving drugs and diagnostic kits from 12% to 0% aim to bring relief to all the citizens in this aspect. Other medicines, including Ayurveda, Unani, and Homoeopathy, have experienced a reduction from 12% to 5%.

Furthermore, GST exemptions on life and health insurance premiums will expand financial protection and support the vision of Mission Insurance for All by 2047. 

2. Education, Sports and Services

In a quest to make education more affordable and accessible for all, the Government has reduced the GST on exercise books, erasers, pencils, crayons, and sharpeners to 0%. 

Reducing GST on hotel stays, gyms, salons, and yoga services will lower costs for citizens, enhance access to wellness, and boost the hospitality and service industries. In the textile sector, correcting duty structures for man-made fibres has improved competitiveness, particularly in exports. The inverted duty structure has been addressed by reducing GST on man-made fibre from 18% to 5% and on man-made yarn from 12% to 5%.

3. Agriculture

The tax burden across agriculture has been drastically reduced, most being in the farming machinery (tractors, irrigation systems, harvesters, composters, bio-pesticides, and micronutrients), as well as fertiliser raw materials like sulphuric acid, nitric acid, and ammonia, now carry just 5% GST, down from prior 12–18% slabs

4. Food and Basic Amenities

The GST reforms bring direct savings to households by lowering taxes on essentials and big-ticket items. Staples like UHT milk, paneer, and Indian breads now carry zero tax, while soaps, shampoos, toothpaste, tableware, and bicycles fall under the 5% slab. Popular foods such as namkeens, sauces, pasta, chocolates, and coffee have also dropped to 5%. Even larger purchases like TVs above 32 inches, air conditioners, and dishwashers are now taxed at 18% instead of 28%. These changes not only ease family expenses but also strengthen India’s manufacturing sector.

5. Automobiles

Under the new GST 2.0 regime, automobiles see a major tax reset. Small cars (petrol, CNG, LPG up to 1,200 cc and diesel up to 1,500 cc, ≤4 m) and motorcycles up to 350 cc now attract just 18% GST, down from 28–31%, while electric vehicles continue at 5%. Luxury cars, SUVs, and large hybrids fall under a simplified 40% slab (earlier ~45–50%), and auto parts are set at 18%. These changes make entry-level vehicles more affordable, simplify taxes, and boost demand as the festive season approaches.

Read this article for the detailed analysis of the reforms!

The Next-Gen GST reforms challenge all the criticism against the Indian Taxation Laws and aim to create a fair and rationalised way of tax paying. The new tax reform also aims at integrating technologically advanced methods of tax paying, filing returns and invoicing. AI detection is also another important aspect of the reforms, which aims at protecting the citizens from any kind of online cyber fraud.

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