GST went down. So why does your monthly budget still hurt?

What GST 2.0 actually changed

On 3 September 2025 the GST Council replaced the old four rates (5%, 12%, 18% and 28%) with two main ones, 5% and 18%, plus a special 40% rate for a short list of luxury and "sin" goods. The new rates applied from 22 September 2025. Most of the changes went down, and they landed on things households buy every week.

What did get costlier

A handful of items moved up, most of them into the new 40% rate. For a typical family these are small or optional parts of the budget.

• Clothes and made-up textiles above ₹2,500 a piece: 18%, up from 12%. Clothing up to ₹2,500 a piece is now 5%, so anything between ₹1,000 and ₹2,500 actually got cheaper (it used to pay 12%).
• Coal and lignite: 18%, up from 5%. The separate compensation cess on coal was removed at the same time, so the overall effect depends on the grade.
• Sugary and flavoured drinks, including colas: 40%. They used to pay 28% plus a compensation cess, which the single rate replaces.
• Big cars, SUVs and motorcycles above 350cc: 40%. They also used to pay 28% plus a compensation cess, which is gone, so many big cars ended up no costlier.
• Betting, casinos, lotteries and online money gaming: 40%.
• Cigarettes and tobacco: from 1 February 2026, cigarettes pay a new central excise duty of ₹2,050 to ₹8,500 per 1,000 sticks on top of GST, depending on length. Reports at the time expected a 15–20% rise in the price per stick.

Did prices actually fall?

Mostly, yes, and quickly. Retail inflation fell to 0.25% in October 2025, the lowest in the history of the 2012-based price index. MoSPI, which publishes it, put the drop down mainly to the full month's impact of lower GST, a favourable base effect and cheaper oils, vegetables and fruit, and said the GST effect was visible across all sectors.

SBI's economists estimated the cuts took about 0.85 percentage points off inflation, more than the 0.65–0.75 points they had expected.

Buyers moved fast too. Dealers' body FADA reported vehicle retail sales up 34% year on year during the 2025 Navratri period, which began on the day the new rates applied.

Not every seller passed the cut on at once. In October 2025 the National Consumer Helpline had logged 3,981 GST-related calls, 69% of them complaints. The biggest group was about milk, which turned out to be tax-free already; the second was about prices of electronics online.

A year later the cut still shows in some prices. In September 2026, cars and jeeps cost 4.51% less than a year earlier, one of the few items in the whole index to fall.

So why does the budget feel tight in 2026?

Because inflation is back, and it's coming from the kitchen. In September 2026 retail inflation was 5.54% and food inflation 7.74%, on MoSPI's new index with 2024 as its base.

Almost everything at the top of that list carries little or no GST: fresh vegetables, fruit and milk are exempt. Onion and garlic prices move with harvests and weather, not tax rates. Petrol and diesel were never part of GST either; they're taxed through central excise duty and state VAT, so the reform didn't touch them.

There's also an arithmetic reason the yearly number is climbing. Inflation compares prices with the same month a year earlier. Until September 2026 that comparison was with months that still had the old, higher GST, which pulled the figure down. From October 2026 both months have the lower GST, so expect the yearly number to look higher even if shelf prices don't change.

Is the middle class overburdened?

On tax rates alone, the last two years brought the biggest relief in a long time. Since 1 April 2025, salary up to ₹12.75 lakh pays no income tax under the new regime, and GST 2.0 cut the tax on most of what a household buys. The Finance Minister estimated about ₹2 lakh crore would stay with people. That was a forecast; we found no official measurement of what households actually saved.

What squeezes a salaried family in 2026 is different: food prices rising faster than pay, and big costs GST doesn't set or didn't cut, like fuel, rent and school fees, and most services, from phone plans to internet, which stay at 18%.

Meanwhile the government isn't short of GST. Gross collections were ₹12.46 lakh crore in April–September 2026, 11.6% more than a year earlier: lower rates on more spending, plus tax on imports, have kept the money coming in.

• GST didn't go up for most households. It went down, and prices followed.
• The 2026 squeeze is food inflation, which GST barely touches.
• The pressure is real, but tax isn't the main cause this year. The fix lies in food supply and incomes, not GST rates.

What you can do

1. 1Check the GST line on bills for things that were cut: appliances, two-wheelers, cars, packaged food and toiletries. If a seller still charges the old rate, complain to the National Consumer Helpline on 1915 or through the INGRAM portal.
2. 2Review your health and life insurance. Individual policies no longer carry 18% GST, so the same cover costs less than before September 2025.
3. 3Keep the ₹2,500 line in mind when buying clothes: a piece up to ₹2,500 pays 5% GST, above it 18%.
4. 4Run a business? Make sure your invoices use the new rates. Our free GST invoice checker flags outdated rates, IGST charged within a state and other common mistakes.