अगली पीढ़ी के GST सुधार
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Next-Gen GST Reforms

The Goods and Services Tax (GST) Council, in its 56th meeting held on 3rd September 2025, cleared the next-generation reforms under the eight-year old indirect tax regime. This effectively paves the way for a broad two-slab structure of 5 per cent and 18 per cent with a demerit rate of 40 per cent rate only for super luxury, sin and demerit goods.

Objective

  • Lower tax burden on common people with sweeping rate cuts and reduction in GST slabs, ease blocked working capital, and facilitate ease of doing business with automated refunds and registration process.
  • All the rate changes, except those for tobacco and tobacco-related products, will come into effect from September 22.

GST Council

  • As per Article 279A (1) of the Constitution, the GST Council had to be constituted by the President within 60 days of the commencement of the Constitution (One Hundred and First) Amendment Act, 2016. The notification for bringing into force Article 279A with effect from 12th September.
  • As per Article 279A (2) of the Constitution, the GST Council shall consist of the following members: – a) The Union Finance Minister 

b) The Union Minister of State in charge of Revenue or Finance 

c) The Minister in charge of Finance or Taxation or any other Minister nominated by each State Government

d) Any person nominated by the Governor of the State where there is a proclamation of emergency under Article 356 of the Constitution of India.  

  • As per Article 279A(4), the GST Council shall make recommendations to the Union and the States on issues related to GST such as the goods and services that may be subjected to or exempted from GST, model GST Laws, principles of levy, principles that govern place of supply, threshold limits, GST rates including the floor rates with bands, special rates for raising additional resources during natural calamities/disasters, special provisions for certain States, etc. 
  • Central Government shall have a weightage of one-third of the total votes cast in that meeting.
  • The State Governments shall have a weightage of two-thirds of the total votes cast.

Key Highlights of GST Council Recommendations

  • GST Council approves rate rationalisation with a focus on Common-man, Labour-intensive Industries, Farmers and Agriculture, Health, Key Drivers of the economy.
  • Rationalisation of the current 4-tiered tax rate structure into a citizen-friendly ‘Simple Tax’ –  two rate structure-
  • Standard Rate of 18% and a Merit Rate of 5%;
  • Special de-merit rate of 40% for a select few goods and services.
  • Exemption of GST on all individual life and health insurance policies whether term life, ULIP or endowment policies and reinsurance thereof to make insurance affordable for the common man and increase the insurance coverage in the country.
  • Reduction of GST from 18% OR 12% to 5% on Daily Essentials and Fast Moving Consumer Goods.
  • Reduction of GST from 12% to 5% on labour intensive goods such as Handicrafts, Marble and travertine blocks, granite blocks, and Intermediate leather goods.
  • Reduction of GST on all other drugs and medicines from 12% to 5% and 18% to 5% on various medical apparatus.
  • Reduction of GST from 12% to 5% on renewable energy devices and parts for their manufacture.
  • Save on Electronics Appliances from 28% to 18%.
  • All the stationery items related to education have become tax free from 12%.
  • All Agricultural, horticultural, forestry, poultry-keeping or bee-keeping machinery, composting machines etc, which earlier attracted 12% GST, has now been reduced to 5%.
  • Beauty and physical well-being services including services of health clubs, salons, barbers, fitness centers, yoga, etc. will attract GST rate of 5% without ITC. These services attracted 18% GST earlier.
  • Earlier, lithium-ion batteries attracted 18% GST and other batteries attracted 28% GST. Now, all batteries under heading 8507 will be uniformly taxed at 18% GST.
  • The Integrated Goods and Services Tax(IGST) on imported goods will be the GST rates as notified in the rate notification except where IGST rate has been exempted separately.
  • All lottery tickets, betting, gambling, horse racing, and casinos attract GST at the rate of 40%.
  • The special rate of 40% is applicable only on few select goods, predominantly on sin goods and few luxury goods and therefore is a special rate. Most of these goods attracted Compensation Cess in addition to GST. Since it has been decided to end the Compensation Cess levy, the Compensation Cess rate is being merged with GST so as to maintain tax incidence on most goods.
  • Simplification of GST Registration process for small and low risk businesses
    • Automatic Grant of registration within 3 working days for an applicant.
    • Identified as low risk based on data analysis
    • Who determines that he would not pass ITC exceeding Rs 2.5 lakh per month and opts for the scheme.
    • Withdrawal from the option: A procedure similar to existing registration procedure will be provided, based on risk parameters.
  • Quality Control Orders (QCOs) are government notifications that make it mandatory for manufacturers to secure Bureau of Indian Standards (BIS) certification before selling or importing specified products. The committee, headed by former Cabinet Secretary and current NITI Aayog member Rajiv Gauba.

The Opposition-ruled states explicitly and unambiguously supported the Centre’s GST rate rationalisation proposal, but were concerned about revenue loss.

  1. In a joint statement, the states projected revenue loss of between Rs 85,000 crore and Rs 2 lakh crore a year and sought “protection of revenue interest and fiscal stability in a federal structure”. They had said states should be compensated for revenue loss – anything lower than 14 per cent revenue growth – for a minimum five years.
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