In a landmark move aimed at boosting consumption and simplifying the tax structure, the 56th meeting of the GST Council, on Wednesday, approved a sweeping “next-generation” Goods and Services Tax reforms.
The GST Council made the recommendations relating to changes in GST tax rates, provide relief to individuals, common man, aspirational middle class and measures for facilitation of trade in GST.
The GST Council meeting, under chairmanship of Union Finance Minister Nirmala Sitharaman, announced consolidation of 12 per cent and 18 per cent slabs into a dual rate structure of 5 per cent and 18 per cent besides 40 per cent for sin goods.
The simplification is part of the “Next-Generation GST” reform initiative, designed to boost affordability, consumption, and economic efficiency.
At a late evening press conference, Union Finance Minister Sitharaman said, “The Prime Minister set the tone for the next generation reforms on 15th August when he spoke from the Red Fort. He decided to give the benefit at the earliest, by Diwali This reform is not just on rationalising rates, it’s also on structural reforms, ease of living, so that businesses can work together 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 Reforms I want to thank every member of the GST Council and every Finance Minister who attended the GST Council, today.”
“We’ve reduced the slabs. There shall be only two slabs, and we are also addressing the issues of compensation cess.”
“These reforms have been carried out with a focus on the common man. Every tax on the common man’s daily use items has gone through a rigorous review and in most cases the rates have come down drastically… Labour intensive industries have been given a good support. Farmers and the agriculture sector, as well as the health sector, will benefit. Key drivers of the economy will be given prominence,” she said.
“We have corrected inverted duty structure problems, we’ve resolved classification-related issues, and we’ve ensured that there will be stability and predictability about the GST. We’ve reduced the slabs. There shall be only two slabs, and we are also addressing the issues of compensation, ease of living, simplifying registration, return filing and refunds,” she added.
“All this will be effective 22 September 2025, the first day of Navratri… The changes on GST of all products except sin goods, will be applicable 22 September… Sin goods will continue at the existing rates of the GST and compensation cess, where applicable, till the loan and interest payment obligations under the compensation cess account are completely discharged… The Union Finance Minister and the Chairperson of the GST Council is authorised to decide on the actual date of the transition for these tobacco related products as soon as the loan and interest is cleared,” she added.
GST Council Meeting Outcomes
Items on which GST has been reduced to 5% include hair oil, toilet soap, soap bars, shampoos, toothbrushes, toothpaste, bicycles, tableware, kitchenware, and other household articles.
Items on which GST has been reduced to zero from 5 per cent include ultra-high temperature milk, chena and paneer. All Indian breads will be available at a nil rate. So roti or paratha or whatever it is, they all come to nil.
“Common man items such as Hair Oil, Toilet Soap, Soap Bars, Shampoos, Toothbrushes, Toothpaste, Bicycles, Tableware, Kitchenware, and other household articles have all been brought under the 5% GST slab Similarly, the GST on items such as ultra-high temperature milk, chena, and paneer has been reduced from 5% to nil. All Indian breads will also attract a nil rate Reduction of GST from 12% or 18 % to 5% include food items such as Namkeen, bhujiya, Sauces, Pasta, Instant Noodles, Chocolates, Coffee, Preserved Meat, Cornflakes, Butter and Ghee,” said the FM in the press conference.
There is a reduction of GST from 12 per cent or from 18 per cent to 5 per cent on food items like namkeen, bujjiya, sauces, pasta, instant noodles, chocolates, coffee, preserved meat, cornflakes, butter, and ghee. All these will be in 5 per cent GST category.
Sitharaman announced reduction from 28 per cent to 18 per cent on air conditioning machines, dishwashing machines, small cars. Motorcycles equal to or less than 350 cc are all now coming to 18 per cent.
“Reduction of GST from 28% to 18% includes several items which meet the aspirations of the middle class. Air-conditioners and TVs above 32 inches are now in the 18% GST slab. All televisions are now taxed at 18% GST slab Dishwashing machines, small cars, and motorcycles with engine capacity up to 350 cc also now fall under the 18% GST slab,” Sitharaman said.
Prime Minister Narendra Modi, in his Independence Day address, had said that next-generation GST reforms by Diwali will reduce taxes on daily essentials, benefiting MSMEs, local vendors, and consumers, while simultaneously stimulating economic growth and creating a more efficient, citizen-friendly economy.
“Agriculture goods such as tractors, agricultural, horticultural and forestry machines for soil preparation or cultivation, harvesting or threshing machines, including straw or fodder balers, grass or hay movers, composting machines etc. all will be taxed at a GST rate of 5%, down from 12% GST rate on 12 specified bio-pesticides and natural menthol has come down from 12% to 5%, which is widely used by the farmers For Handicrafts and labour-intensive sectors which includes marble, travertine blocks, granite blocks, and intermediate leather goods, will be taxed at a GST rate of 5%, down from 12%,” she announced.
“GST rate will be reduced from 12% to zero on 33 lifesaving drugs & medicines, and from 5% to zero on 3 lifesaving drugs & medicines used for treatment of cancer, rare diseases and other severe chronic diseases Similarly, spectacles and goggles for correcting vision will be taxed at a GST rate of 5%, down from 28%,” the Finance Minister announced.
“Reduction of GST rate from 28% to 18% on buses, trucks, and ambulances. Uniform GST rate of 18 % on all auto parts irrespective of their HS code; Three-Wheelers from 28% to 18%,” she added.
“Exemption of GST on all individual life insurance policies, whether term life, ULIP or endowment polices and re-insurance there of, to make insurance affordable for common man and increase the insurance coverage in the country Exemption on GST on all individual health insurance policies, including family floater policies and policy for senior citizens and re-insurance,” she said.
The Finance Minister further stated, “The long pending inverted duty structure problem is getting corrected for the manmade textile sector, by reducing GST rate, on manmade fibre from 18% to 5% and manmade yarn from 12% to 5%. This gives effect to government’s objective of fibre-neutral policy We are also correcting inverted duty structure problem in fertilizer sector by reducing GST from 18% to 5% on Sulphuric Acid, Nitric Acid, Ammonia.”
It has been decided that the GST will be levied on Retail Sale Price (RSP) instead of transaction value on Pan Masala, Gutkha, Cigarettes, Unmanufactured tobacco, Chewing tobacco like Zarda.
It has been decided to grant ad hoc IGST and compensation cess exemption on new armoured sedan Car imported by the President’s Secretariat for the President of India.
“The changes in GST rates of all goods, except for Pan Masala, Gutkha, Cigarettes, Chewing Tobacco, products like Zarda, Bidi will be implemented with effect from 22nd September 2025,” Sitharaman stated.
“A special tax rate of 40% has been introduced, while most goods remain in the 5% to 18% range. This higher rate will apply to sin and super-luxury goods such as paan masala, cigarettes, gutka, chewing tobacco, zarda, unmanufactured tobacco, and bidis All goods, including aerated waters containing added sugar or other sweetening matter or flavoured, caffeinated beverages, carbonated beverages of fruit drink or carbonated beverages with fruit juice and other non-alcoholic beverages, excluding those specified at lower rates, will all be covered under 40%,” she added.
The Council has recommended adding explanations to the definition of ‘specified premises’ in the context of taxability of restaurant services in order to clarify the position that a stand-alone restaurant cannot declare itself as a ‘specified premises’ and consequently cannot avail the option of paying GST at the rate of 18 per cent with ITC.
The Council has recommended aligning the valuation rules with the change in the tax rate applicable to lottery tickets, certain amendments in the GST Valuation rules are being carried out.
GST Council recommendation relating to date of implementation
The Council was of the view that the changes in GST rates of goods and services need to be implemented with effect from 22 September, 2025. However, keeping in view the requirement of funds to fulfill the obligation under the compensation cess account, the Council decided that the changes in GST rates may be implemented in a phased manner as follows:
- The changes in GST rates on services will be implemented with effect from September 22, 2025.
- The changes in GST rates of all goods except pan masala, gutkha, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and bidi, will be implemented with effect from September 22, 2025.
- Pan Masala, gutkha, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and bidi 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.
- Based on c) above, Union Finance Minister and Chairperson of the GST Council may decide the actual date of transition to the revised rates of GST approved by the Council for the above-mentioned goods.
- Pending requisite amendments in CGST Act, 2017, Central Board of Indirect Taxes and Customs (CBIC) shall administratively start implementation of the revised system of grant of 90 per cent provisional refunds arising out of Inverted Duty structure on the basis of data analysis and risk evaluation done by the system, as in the case of risk based provisional refunds on account of zero-rated supplies.
