India undertook a major simplification of GST rates in September 2025 under GST 2.0. The earlier structure had four main slabs: 5%, 12%, 18% and 28%. The reform moved the system to two principal slabs of 5% and 18%, with a 40% rate for selected categories such as pan masala, tobacco, aerated drinks and luxury goods. Official information said the revised rates were to come into effect from 22 September 2025, with a separate notification path for some tobacco-related goods.

For exam preparation, the issue belongs to Indian Economy, indirect taxation, fiscal federalism and Centre-State financial relations. GST is part of the shared tax framework of the Union and the states, so rate simplification is not only about consumer prices; it also affects compliance, classification disputes, revenue stability and cost conditions for businesses. PIB framed the reforms as relief for the common citizen, simplification for businesses and a growth-supporting step. Rate reductions across household goods, medicines, farm machinery, small vehicles, cement, handicrafts and insurance were expected to support demand and affordability.

Fitch Ratings viewed the GST reforms as generally positive for consumption-focused issuers and raised India’s FY26 growth forecast from 6.5% to 6.9%. For prelims, the likely questions are the slab structure, the special 40% rate and the effective date. For mains, the reform can be used to discuss tax reform, consumption-led growth, cooperative federalism and revenue balance. In the June 2026 monetary policy, RBI kept the repo rate unchanged at 5.25%, which is the current policy rate.