GST (Goods and Services Tax) change in slab rate and its effect

On 3^rd September 2025, GST Council has taken historic steps to simplify the tax structure in GST Act by removing of tax rate and now only three tax rates are applicable i.e. 5%, 18%, and 40 %. However, 40 % tax rate is applicable only for luxury item and SIN Goods.

The historic changes are not only the simplify tax structure but also simplify the GST Registration process and simplify refund process for exporters. The new effective rate shall be applicable with effect from 22^nd September 2025. This reform is called Next Gen GST Reforms.

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We can summarize the benefit of new tax reforms as below:

1.      It expands the tax base in India and it will be very closer to the One Nation One Tax.

2.      Smoother duty structure will help in faster refund process.

3.      Easy registration for small and low risk business.

It will encourage the Automobile Sector, Service Sector, Hotel Industry, Household Sector, Medical Sector, Health and Insurance Sector and major boost for Agriculture Sector.

Next GEN GST Reform increases the cycle of growth by the following way:

Lower rate of goods and services will attract saving and increase purchasing power.

• It will support MSME by lower raw material cost and encourage business environment. The benefit can be availed only by getting simple MSME registration.

• Two rates will be more popular and cover all the goods and services and it will affect the simpler compliance process and less dispute, quicker resolution.

• GST Exemption for Health insurance and lower rate of GST on medicine will provide social security.

The entire business growth cycle will be:  Lower costs → higher demand → larger tax base → stronger revenues → sustainable growth.

However, it will be the estimated revenue loss of Rs 48000 Crores annually but this can be set off against high demand in coming days.

How can the industry explore this opportunity?

• MSME and START UP can take the benefit by way of simpler pricing, working capital relief, ITC refund, and compliance relief.

• Manufacturing sector specially construction, Auto and textiles can be benefited by smoothing supply chain. It will reduce the cost of inventory.

• Real estate and infrastructure sector expecting to cut in price and increase in demand of new home. Developers are expecting to make more affordable projects.

• Automobile sectors have double benefits. Expecting low tax rate will increase demand in small segment cars while as high tax price on luxury cars will maintain the premium market.

Conclusion

The NEXT GEN GST REFORMS is welcome steps and it will be benefited for all consumer as well as corporates.  It is a balancing act for revenue and growth. It will boost the digital economy and automation of compliance work. STARTUP Registration, MSME Registration and RERA will collectively help to facilitate the legal and structured compliant business framework for young entrepreneurs to build and scale their business.

Author:  Prahald Kumar, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.