The GST Council in New Delhi has announced significant changes to the Goods and Services Tax (GST) structure, simplifying it into a two-rate system of 18% and 5%, effective from September 22, 2025. This overhaul aims to make daily-use items, medicines, agricultural goods, automobiles, and cement more affordable. Notably, all individual life and health insurance policies are now fully exempt from GST, providing relief to policyholders.
The council has reduced GST on essential goods such as soaps, shampoos, and kitchenware, while lifesaving drugs and medical devices see a tax reduction to 5%. Automobiles, including small cars and motorcycles, along with cement, will be taxed at 18%, down from 28%. Agricultural machinery and labor-intensive sectors like handicrafts and leather goods will enjoy reduced GST rates of 5% or even nil, promoting industry growth.
Renewable energy devices and hotel accommodations priced at ₹7,500 per day or less will also benefit from a 5% GST rate. Additionally, services like beauty, salon, gym, and yoga will see a reduced tax rate of 5%, making them more accessible to consumers.
To address disputes, the GST Appellate Tribunal will become operational by December 2025, with a deadline to clear backlog appeals by June 2026. These reforms aim to streamline taxation, reduce costs for consumers, and enhance the overall efficiency of the GST system.
The Council introduced risk-based 90% provisional refunds for inverted duty and exports, and simplified GST registration for small/low-risk businesses and e-commerce sellers (from 1 Nov 2025). Key legal tweaks include removal of Section 13(8)(b) (intermediary services), new treatment of post-sale discounts via credit notes with ITC reversal, and RSP-based valuation for pan masala/tobacco, along with notifying local delivery services under Section 9(5).
Following are the recommendations of the 56th Meeting of the GST Council held at New Delhi:
A. Rate Rationalization
- Exemption on Insurance: GST exemption granted on all individual life and health insurance policies (including family floater and senior citizen policies).
- Rate Rationalisation: 4-tier GST structure simplified into a 2-rate system – Standard rate 18% and Merit rate 5%; demerit goods at 40%.
- Common-Man Goods: Significant GST cuts – e.g., soaps, shampoos, toothpaste, bicycles, kitchenware, UHT milk, paneer, all Indian breads, namkeens, chocolates, instant noodles, ghee, butter, coffee.
- Medical Relief: GST reduction/exemption on 36 lifesaving drugs, all medicines cut from 12% → 5%, and medical devices/equipment brought to 5%.
- Automobiles & Cement: Small cars, motorcycles (≤350cc), buses, trucks, ACs, TVs moved from 28% → 18%; cement from 28% → 18%; auto parts at uniform 18%.
- Agriculture & Labour-Intensive Sectors: Tractors, agri-machinery, fertilizers, handicrafts, leather, marble, granite cut to 5% or NIL.
- Renewables & Hotels: Renewable energy devices at 5%; hotel rooms ≤₹7,500/day at 5%.
- Services: Reduction to 5% for beauty, salon, gym, and yoga services.
- Implementation: New GST rates effective 22 Sept 2025 (except pan masala, gutkha, cigarettes, tobacco which remain at current rates until cess obligations are met).
- Dispute Resolution: GST Appellate Tribunal (GSTAT) to be operational by Sept 2025; hearings by Dec 2025, backlog appeals deadline fixed at 30 June 2026.
B. Process Reforms & Law/Procedure Changes (Annexure V)
Refunds & Trade Facilitation
- Risk-based provisional refunds (90%) for zero-rated supplies & inverted duty structure (IDS) – effective 1 Nov 2025 .
- Removal of threshold for export refunds on low-value consignments.
Registration & Compliance Simplification
- Optional simplified GST registration for low-risk/small businesses – approval within 3 working days; voluntary opt-in/out; effective 1 Nov 2025.
- Simplified registration scheme for small e-commerce suppliers selling across states.
Law Amendments
- Intermediary services (IGST Act, sec. 13(8)): Clause (b) omitted → place of supply = recipient’s location (helps Indian service exporters).
- Post-sale discount treatment:
- Section 15(3)(b)(i) omitted (no pre-agreement required).
- Linked to credit notes under sec. 34; ITC reversal mandated where discount reduces supply value.
- Circular 212/6/2024 rescinded. Clarificatory circular to address ITC & consideration treatment .
Other Legal/Procedural Updates
- RSP-based valuation for pan masala, gutkha, tobacco, etc., with CGST Rule amendments .
- Local delivery services via e-commerce operators notified under Section 9(5); rate = 18% .
