India’s tax landscape has undergone one of its most significant changes since GST’s 2017 launch. The 56th GST Council meeting delivered a major simplification, removing the 12% and 28% tax slabs and leaving just two primary rates: 5% and 18%.
This is more than a routine policy update. It represents a fundamental restructuring that affects business transactions, inventory calculations, and pricing strategies nationwide. For TallyPrime users, the change presents both opportunities and operational considerations that require careful planning.
Starting 22nd September 2025, businesses will operate under a simplified GST framework designed to encourage consumption and ease compliance. Are your systems ready for the transition?
The great GST simplification
The GST Council's decision represents the most significant tax reform since GST's inception. By eliminating the middle slabs of 12% and 28%, the government aims to create a cleaner, more predictable tax structure that benefits both businesses and consumers.
This move addresses years of classification disputes and rate ambiguities that have plagued businesses. Companies previously struggled to determine whether products fell under 12% or 18%, or whether services qualified for 18% or 28% rates. These gray areas led to compliance headaches, penalty risks, and operational inefficiencies.
The new two-slab structure eliminates most of these ambiguities. Products will clearly fall into either the essential category (5%) or standard category (18%), with a special 40% rate reserved for sin goods and luxury items.
Timeline and implementation
GST 2.0 has come in effect from 22nd September, 2025, after the decision being announced on 3rd September 2025. This gave businesses a crucial window to prepare their systems and processes. However, certain tobacco products and sin goods will maintain existing rates until compensation cess obligations are fully discharged—a reminder that some complexity remains.
The new price landscape
Items getting cheaper
The migration from higher slabs to lower ones creates significant savings across multiple categories:
Food and beverages transform
Everyday kitchen essentials see dramatic price drops. Ghee, butter, and paneer moved from 12% to 5%, making cooking ingredients more affordable for households. Packaged snacks like namkeens, bhujia, and mixtures also benefit from the 12% to 5% shift.
Even more striking are the beverage changes. Mineral water, previously taxed at 18%, drops to 5%—a change that will particularly benefit restaurants, hotels, and bulk consumers.
Consumer durables
Air conditioners, televisions, refrigerators, and washing machines dropped from 28% to 18%. For a ₹50,000 refrigerator, this represents ₹5,000 in tax savings—enough to influence purchase decisions significantly.
Healthcare
Life-saving medicines and medical devices see substantial reductions, with many items moving from 12-18% to 5% or becoming completely exempt. This change addresses the long-standing concern about healthcare affordability in India.
Personal care
Hair oil, shampoo, toothpaste, and dental floss dropped from 18% to 5%. These daily-use items will see immediate price reductions that benefit every household.
Items facing higher costs
Sin goods
Sugary drinks, including aerated waters, jump from 28% to 40%. This aggressive taxation reflects the government's public health priorities and could significantly impact beverage manufacturers and retailers.
Coal
Coal taxation increases from 5% to 18%—a move that will affect power generation, steel, cement, and other energy-intensive industries. This increase could create cost pressures that partially offset savings in other areas.
Tobacco
Pan masala, gutkha, cigarettes, and related products maintain their high tax rates plus cess. The shift to Retail Sale Price (RSP) valuation aims to prevent tax leakages and could increase effective tax burdens.
Economic impact
Consumption boost expected
Market experts predict the changes will stimulate demand across multiple sectors. Lower prices on consumer durables could trigger a replacement cycle, while reduced food costs free up household budgets for discretionary spending.
Industry-specific implications
FMCG
Food and beverage companies face an interesting dynamic. While most products become cheaper, they must quickly adjust pricing, inventory valuations, and supply chain costs. Companies like Britannia, which see biscuits moving to 5%, anticipate significant volume growth.
Consumer durables
The 10-percentage-point reduction on appliances creates a substantial pricing advantage. Companies that quickly pass through these savings to consumers could gain significant market share during the festive season.
Healthcare
Reduced medical device and medicine costs could improve healthcare access, particularly in price-sensitive segments. However, companies must navigate the transition carefully to maintain profitability.
Revenue implications for government
SBI Research suggests states will remain net gainers despite short-term revenue pressures. The projected effective GST rate drop to 9.5% continues the downward trend from 14.4% at inception to 11.6% in 2019.
Historical evidence supports the view that initial revenue dips are followed by strong rebounds as consumption increases drive volume growth.
What's beyond 22nd September 2025?
Future simplifications
This two-slab structure may not be the final destination. Government officials hint at eventual moves toward a single GST rate, making this transition a stepping stone toward even greater simplification.
Businesses that master the current transition will be better positioned for future changes, having developed change management capabilities and system flexibility.
Technology integration opportunities
The simplified rate structure enables better integration between GST systems and other business applications. Reduced complexity makes it easier to automate tax processes and integrate with emerging technologies.
Competitive advantages
Companies that navigate this transition smoothly while competitors struggle with manual processes gain significant market advantages. Superior pricing agility and customer service during change periods can capture lasting market share gains.
Conclusion: Embracing the new GST era
The move to a two-slab GST structure goes beyond regulatory compliance—it’s a strategic opportunity for businesses ready to adapt efficiently. For TallyPrime users, this transition comes with a distinct advantage.
Automated updates, smart tax classification, seamless inventory management, and end-to-end compliance monitoring turn what might have been a disruptive change into a growth opportunity. With TallyPrime as your partner, regulatory shifts become a platform to gain operational efficiency and competitive edge.
