Summary of this article
GST slabs keep basics at 5 per cent, luxuries higher
12 per cent slab removed, 40 per cent slab added
Daily items now cheaper for consumers at 5 per cent GST
When the Goods and Services Tax (GST) was implemented in July 2017, it substituted a complicated system of indirect taxes, such as excise duty, service tax, and value-added tax (VAT). In order to make this new framework functional for both consumers and the government, GST was separated into various tax rates, often called slabs.
Slabs are types of rates levied on goods and services. Rather than charging a uniform rate for all, the GST regime employs various slabs, under which essential commodities come with a lower rate, whereas luxury as well as sin goods are subjected to higher rates.
Why The Slab System Was Created
The slab system was brought in to take into consideration the widespread differences in incomes across the country. One uniform tax rate would make essentials unaffordable for lower-income groups or restrict the government from raising revenue.
Essentials, such as food grains, fresh vegetables, and milk were bracketed under the zero per cent or 5 per cent category. Commodities of mass consumption, like packaged food items, soaps, or shoes, were positioned in middle slabs like 12 per cent or 18 per cent. Luxury items like cars, air-conditioners, and luxury items were charged the highest rate of 28 per cent, sometimes with a cess added. Goods like tobacco and aerated beverages also came under the highest slab.
How The Structure Looked In The Beginning
During its launch, GST featured four key slabs: 5 per cent, 12 per cent, 18 per cent, and 28 per cent. In addition to these, there was a zero-rated list for foods that were essential and an exempted list. With time, modifications were also made because too many slabs made it confusing for both businesses and consumers.
Some products which were under Rs 1,000, were put in the 5 per cent category, while more expensive footwear taxed at 18 per cent. Restaurants also witnessed changes in rates as there were arguments over whether they had to be classified as luxury or as regular services.
Why Slab System Matters For Consumers
The slab system of GST influences common household expenses. For instance, if a Rs 100 product is charged 12 per cent GST, the buyer pays Rs 112. If the same product is shifted to the 18 per cent slab, the overall price increases to Rs 118. The difference adds up over time for households that purchase such goods and services on a regular basis.
Alterations Introduced Post-Covid
During the Covid-19 pandemic, the government lowered the GST rates on a few items. Some medicines and oxygen concentrators were lowered to 5 per cent or made fully exempt for some time.
In the subsequent years, household items were brought from higher slabs to lower slabs to reduce pressure on families and to simplify compliance. Luxury and sin items remained taxed at a higher rate.
The Newest Council Decision
The 56th GST Council meeting, which took place on September 3-4, 2025, issued amendments with an objective to rationalise slabs, which are set to be implemented from September 22. The 12 per cent slab that had been causing classification problems has been abolished. Goods were shifted mostly into the 5 per cent or 18 per cent slabs, with a new 40 per cent slab introduced for sin and super-luxury items, such as tobacco, pan masala, aerated beverages, and luxury cars.
Manoj Mishra, partner and tax controversy management leader at Grant Thornton Bharat LLP, said: "The GST rate rationalisation is a watershed recalibration of India's indirect tax system. The 5 per cent slab contributes only about 7 per cent of collections, while the 12 per cent slab adds a mere 5 per cent but has been the source of persistent classification disputes and inverted duty structures.". Rationalising these, while introducing a new 40 per cent slab for sin commodities, such as pan masala, tobacco and super-luxury products, widens the tax base even as the government takes an estimated Rs 48,000 crore hit.
ACs, TVs, and washing machines are now being taxed at 18 per cent rather than 28 per cent. Agriculture machinery and fertiliser inputs were shifted to 5 per cent. FMCG products like soaps, shampoos, and toothpaste also got shifted to 5 per cent. Life and health insurance premiums were exempted.
Krishan Arora, tax planning and optimisation partner at Grant Thornton Bharat, said, "By exempting necessary items like milk, paneer, and parathas, and removing GST on life-saving medicines, the Council has provided instant and significant relief to households."
Why Simplification Is Important
Reducing the number of slabs serves to reduce complications regarding product categorisation. Previously, there were always doubts as to whether a product was to be taxed at 5 per cent or at 12 per cent. For instance, there was controversy regarding whether parathas are to be classified as plain bread or processed food, each having a different rate.
Simplification also facilitates easy compliance by businesses, particularly small and medium enterprises (SMEs), and enhances the efficiency of revenue collection by the government.
