New Delhi: The Goods and Services Tax (GST) council on Wednesday (September 3) approved a two-tier rate structure of 5% and 18% to be implemented from September 22, which is expected to incur a loss of about Rs 48,000 crore.The two new slabs will replace the current GST rates of 5%, 12%, 18% and 28%.Calling the rate rationalisation a ‘structural reform’, Union finance minister Nirmala Sitharaman said it has been carried out with a focus on the common person, following Prime Minister Narendra Modi’s call for “next generation” reforms in his Independence Day address.While the GST rate rationalisation comes in the aftermath of the US’s tariffs on Indian goods, Sitharaman said the reforms had nothing to do with Washington’s levies.Following the council’s meeting on Wednesday that lasted for over ten hours, Sitharaman said that finance ministers from every state were on board in the interest of the ordinary Indian.“The prime minister set the tone for the next generation reforms on August 15 when he spoke from the Red Fort. He desired that we give the benefit to the people at the earliest, by Diwali,” she said while addressing a press conference.Sitharaman continued: “This reform is not just on rationalising rates, it’s also on structural reforms, it’s also on ease of living, so that businesses can work together with GST with great ease. We have corrected inverted duty structure problems, we have resolved classification related issues, and we have ensured there will be stability and predictability about the GST.”“We have reduced the slabs – there shall be only two slabs … These reforms have been carried out with a focus on the common man. Every tax levied on the common man’s daily use items has gone into a rigorous looking-into, and in most cases the rates have come down drastically. Labour-intensive industries have been given good support. Farmers and agriculture as a whole will also benefit by today’s decisions. Health will also benefit. The key drivers of the economy have been given prominence.”Sitharaman said that ‘sin goods’ such as tobacco products, including cigarettes and paan masala, will attract the highest rate of 40% in the new rate structure. She said that while the new rates will come into effect from September 22, the compensation cess will continue on tobacco and tobacco-related products till loan and interest-payment obligations under the compensation cess account are completely discharged.“Paan masala, gutkha, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and beedi will continue at the existing rates of GST and compensation cess where applicable, till loan and interest-payment obligations under the compensation cess account are completely discharged,” the finance minister said.The finance ministry in a press release said that the Union finance minister – who is also chairperson of the GST council – may decide the actual date of the transition to the revised GST rates approved by the council for these products.Daily use items that will shift to the 5% slab include hair oil, shampoo, toothpaste, toilet soap bars, toothbrushes and shaving cream that were earlier under the 18% slab.Butter, ghee, cheese, dairy spreads, pre-packaged namkeens, utensils, feeding bottles, napkins for babies and sewing machines will move to the 5% slab from the 12% rate.Individual health insurance and life insurance, which were under the 18% slab, will be exempted from GST.Educational items like maps, charts, globes, pencils, sharpeners, crayons, exercise books and notebooks, which attracted 12% GST, will also be exempted.Other items in the healthcare sector like thermometers, medical grade oxygen, diagnostic kits and corrective spectacles will move to the 5% slab.In the agricultural sector, tractor tyres, parts, specified bio-pesticides, drip irrigation systems, sprinklers, soil preparation machines among other things will also move to the 5% slab.Electronic appliances like televisions (above 32 inches), ACs, monitors and dishwashing machines will move to 18% from 28%.Automobiles like petrol, petrol hybrid, LPG and CNG cars (not exceeding 1200 cc and 4,000 mm); diesel and diesel hybrid cars (not exceeding 1500 cc and 4,000 mm); three-wheelers; and motorcycles (350 cc and below) will move to 18% from 28%.Hon’ble Prime Minister Shri @narendramodi announced the Next-Generation GST Reforms in his Independence Day address from the ramparts of Red Fort.Working on the same principle, the GST Council has approved significant reforms today.These reforms have a multi-sectoral and… pic.twitter.com/NzvvVScKCF— Nirmala Sitharaman Office (@nsitharamanoffc) September 3, 2025While opposition-ruled states had earlier this week expressed their support for the Union government’s rationalisation of GST slabs but demanded compensation for revenue losses due to rate cuts, there was no mention of any such compensation.Revenue secretary Arvind Shrivastava however said that the estimated cost of the rationalisation exercise was around Rs 48,000 crore and that it would be financially sustainable as the government expected buoyancy and consumer behaviour to play a positive role.Sitharaman said that the only figures that are “being thrown around” are about losses to states.“Numbers are being thrown around, ‘this much loss, that much loss’. You’ve just seen the revenue secretary detail on the basis of 2023-24 numbers … the net amount that we’ll be looking at. I am not going to join forces to argue on ‘somebody said this much, or somebody said that much’,” she said.Sitharaman also denied that the GST rate rationalisation had anything to do with the new US tariff rate the US has imposed on India.“The tariff turmoil is not a matter that influenced the GST reform, because we have been at it for more than one and a half years. Some group of ministers was working on rate rationalisation, some other group of ministers later worked on insurance and so on. And compensation cess was a reality, that it is going to end the moment you paid back the loan. None of this has anything to do with the tariffs,” she said.Following the meeting, Modi in a statement on X said that he had spoken about the government’s intention to bring ‘next-generation reforms’ in GST in his Independence Day address.“The Union Government had prepared a detailed proposal for broad-based GST rate rationalisation and process reforms, aimed at ease of living for the common man and strengthening the economy. Glad to state that GST Council comprising the Union and the States, has collectively agreed to the proposals submitted by the Union Government on GST rate cuts & reforms, which will benefit the common man, farmers, MSMEs, middle-class, women and youth,” he said.“The wide ranging reforms will improve lives of our citizens and ensure ease of doing business for all, especially small traders and businesses.”