India’s biggest overhaul of the Goods and Services Tax (GST) since its 2017 rollout came into effect today, coinciding with the start of Navratri festivities.
Prime Minister Narendra Modi, addressing the nation on Sunday evening, announced that the new GST structure — along with earlier income tax reforms — is expected to save Indians nearly ₹2.5 lakh crore this year. Calling the initiative a “Bachat Utsav” (Festival of Savings), he said that while the income tax cuts primarily benefit the middle class, the revised GST rates will ease the financial burden on the poor and the growing middle-income segment.
Key Changes Under GST 2.0
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Two-Tier Structure: Most goods and services will now be taxed at either 5% or 18%, while ultra-luxury goods will face a 40% levy.
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375 Items Cheaper: Prices of household essentials — including ghee, butter, paneer, snacks, ketchup, jam, coffee, ice cream — as well as aspirational goods like TVs, washing machines, refrigerators, and air conditioners, have been reduced.
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Luxury Items & Tobacco: Tobacco and related products remain in the 28% bracket, along with an additional cess.
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Simplification: The earlier four-tier GST structure (5%, 12%, 18%, 28%) has been reduced to two primary slabs, making compliance simpler for businesses.
Economic Impact
The government hopes the reforms will:
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Boost Festive Demand: Lower prices on electronics, automobiles, and consumer goods are expected to drive sales across FMCG networks, retail chains, and e-commerce platforms.
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Support SMEs: Reduced tax burdens will help small and medium enterprises remain competitive and attract more investment.
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Offset External Pressures: Policymakers expect rising domestic consumption to help India weather global trade headwinds, including US tariffs on Indian exports.
Mixed Political Reaction
While the government has hailed the move as a landmark reform, the Opposition has criticised it as “a band-aid on deep wounds,” arguing that taxing essentials in the first place hurt ordinary citizens.
Nevertheless, experts believe the timing of the announcement — just ahead of the festive season — could spur consumer spending and give India’s economy a timely boost.
