The story so far: On September 3, the GST Council authorised a new paradigm in the indirect tax regime. There will be fewer rates, and the Goods and Services Tax (GST) on most items have been reduced. While this has been welcomed by most sectors, there are some which are somewhat disgruntled. There are also concerns over the revenue implications.

Also read | GST Revamp: Who benefits? Full item-wise roundup

What prompted these changes?

The rationalisation of the multiple rates in GST has been on the anvil for a long time. The Council had in September 2021 constituted a Group of Ministers (GoM) to look into rate rationalisation. This GoM began its work, but seemingly little progress was made. The GoM was composed entirely of representatives from the States, with no representative from the Centre. So, in order to nudge it in the direction it wanted, the Union government had to make a proposal to the GoM. The Ministry of Finance on August 15, 2025, announced that it had submitted its proposal to the GoM. Earlier that same day, in his Independence Day speech, Prime Minister Narendra Modi had announced that these “next-generation” GST reforms would be a Deepavali gift to the nation.

By August 21, 2025, the GoM — following a briefing by Union Finance Minister Nirmala Sitharaman — had accepted the proposals and forwarded them to the GST Council. The Council then deliberated on these proposals on September 3 during a 10.5-hour-long meeting, following which it announced its decisions.

What are the changes?

The existing GST structure has multiple rates, even when considering only the main ones. The main rates comprise 0%, 5%, 12%, 18%, 28%, and a compensation cess over and above the 28% slab. This has been reduced to main slabs of 0%, 5%, 18% and 40%. The compensation cess for most items has been removed. It is still levied on tobacco products, but even that will be removed by the end of this calendar year, when the Centre pays back the loan it took to compensate States during the COVID-19 pandemic.

Apart from this, many items have been moved to lower tax slabs. According to an analysis by the State Bank of India’s economics research wing, of the 453 items that saw a change in their GST rate, 413 (or a little more than 91%) saw rates being cut, while 40 items saw rates increasing. The bulk of the rate reductions — 257 items, mostly common use products — were from the 12% to the 5% slab. Out of the 40 items that saw their rates increase, 17 were moved from the 28% slab to 40%. Here, it is important to note that the actual tax incidence might not have increased. For example, once the compensation cess is added, the effective tax rate on luxury cars and SUVs is 45-50%. That will go down to 40%.

Why were they necessary?

There are several reasons why the GST rate cuts make sense now. The first is that the legal period for the GST compensation cess will likely be coming to an end this calendar year. It can be levied up to March 31, 2026 or till when the Centre pays off its loans, whichever is earlier. Ms. Sitharaman said she expects the loans to be repaid this calendar year. The removal of this cess, without raising the base rates on tobacco products, would mean that these ‘sin’ goods would have suddenly become significantly cheaper. This is something the Union government could not be seen to be condoning. That set a time limit by when the new rates had to be implemented. The other reason is that the government expects some sort of detrimental impact from the 50% tariff imposed by the U.S. on imports from India. This is clear from the fact that, despite a strong 7.8% GDP growth in Q1 of this financial year, the government has not changed its 6.3%-6.8% growth estimate for the full year, implying it expects growth in the subsequent quarters to be significantly slower. The boost from the GST rate cuts is expected to offset this hit. The government, however, has officially denied any such connection, saying the GST changes were part of an overall reforms push and not related to the tariffs.

Which sectors were happy with the reforms?

The healthcare industry voiced its approval of the changes, saying the decision to reduce GST in the sector from 12% to 5% on a wide range of medical products would directly benefit patients. The renewable energy sector, too, praised the decision to reduce taxes on renewable energy components from 12% to 5%, saying this was a progressive step towards accelerating India’s clean energy transition. Consumer appliance makers were also upbeat about the cuts, saying it would boost demand, especially in the run-up to the festive season.

The real estate sector said that bringing down the GST rate on cement from 28% to 18%, and on other building materials such as granite slabs, would reduce costs for the sector and be a big boost. Auto manufacturers said the reduction of GST on cars and non-luxury bikes from 28% to 18% would spur demand.

Which sectors voiced reservations?

The textile industry welcomed the downward revision of GST rates for both man-made fibre and cotton sectors to 5%, but also voiced its disappointment over the 18% duty for garments priced above ₹2,500 each. They said that woollens, wedding apparel, and traditional Indian wear would become more expensive.

While auto manufacturers welcomed the rate rationalisation, dealers voiced some worries about consumers postponing their purchases until September 22, when the new rates come into force. They also called for greater clarity on what happens to the cess on vehicles they have bought from manufacturers but not yet sold.

The insurance sector will likely also see a mixed picture from the GST rate cuts. The exemption of personal life and health insurance from GST will increase insurance penetration, but the simultaneous removal of input tax credits might increase costs for insurers, thereby eating into their profits.

Editorial | Cuts in time: On the new GST system  

Airlines have collectively slammed the higher GST on non-economy seats, while vegetable oil producers said the Council could have resolved the inverted duty structure on edible oils — something it did for fertilizers and man-made textiles. The increase in the GST rate for labour charges from 12% to 18% has also led to some resistance from representatives of the MSME sector, who said their costs would increase.

What is the revenue impact?

The Centre said the revenue implication would be ₹48,000 crore based on consumption patterns in 2023-24. However, the real impact will be ascertained only when new data is obtained. The SBI research team estimates it to be a much smaller ₹3,700 crore. Opposition States, however, are worried. They have voiced their demand for a cess to be levied on items in the 40% slab, the proceeds of which can be used to compensate States for the revenue hit. This was not accepted by the Council. The States will have to look for their own sources, and the 16th Finance Commission, to make up any losses.

Published – September 07, 2025 02:23 am IST

India’s economic journey has always been shaped by bold reforms, and the latest set of Goods and Services Tax (GST) measures announced at the 56th GST Council meeting on September 3, 2025, may well prove to be one of the most consequential yet. For years, businesses and policymakers alike have called for simplification, predictability, and fairness in India’s indirect tax regime. With the latest decisions — streamlining rates, correcting anomalies, easing compliance and strengthening dispute resolution — the government has delivered a package that balances ambition with pragmatism.

What makes this moment special is not just the scope of the changes but also the collaborative spirit behind them. The result is what many are calling GST 2.0 — a reform designed not merely to fix today’s problems but also to unlock India’s growth potential for the decade ahead.

Relief for many income groups

Essentials such as soap, toothpaste, hair oil, shampoo, kitchenware and packaged foods now fall under lower tax brackets, immediately easing household budgets and boosting demand in sectors that employ millions. For housing, reduced GST on cement and construction materials will bring homes within reach for more families, supporting the government’s ‘Housing for All’ mission while stimulating allied industries such as steel, tiles, sanitaryware and paints. Infrastructure projects too will benefit from lower costs of inputs, improving project viability and freeing capital for expansion.

Life-saving drugs and critical medical devices have been moved to nil or 5% GST, cutting treatment costs and expanding access for patients. In a country that has emerged as a global hub for affordable medicines, this is both a social and economic win.

Labour-intensive industries such as textiles, handicrafts, leather, footwear, and toys — stand to gain from lower rates that protect margins, safeguard livelihoods, and create jobs in semi-urban and rural clusters. The automotive sector, a key driver of growth, will also see a boost as now more affordable small cars, motorcycles, buses and trucks will encourage demand and investment in auto-manufacturing hubs.

Helping exporters and MSMEs

The rationalisation of rates would also help exporters. Long-standing distortions created by inverted duty structures in textiles, fertilizers and renewables are finally being corrected. This will make Indian products more competitive globally while reducing import dependence. Export-heavy sectors such as handicrafts, leather, and engineering goods — most driven by micro, small and medium enterprises (MSME) — are well placed to gain benefits. Lower duties on capital goods and intermediates will also promote local value addition, directly supporting the ‘Make in India’ initiative.

One of GST’s biggest challenges has always been litigation. Interpretational disputes, classification complexities and uncertainty over tax treatment have burdened businesses and clogged up the system. Rationalisation addresses this by simplifying slabs and harmonising rates for similar goods. Clarifications on intermediary services and post-sale discounts further reduce ambiguity, bringing long-awaited relief to service exporters and aligning tax rules with commercial practices.

Small exporters will welcome the decision to remove thresholds for refunds on low-value consignments. This ensures fairer treatment for courier and e-commerce players, where liquidity pressures are acute. Faster, more reliable refunds will ease working capital challenges and encourage reinvestment in growth.

Perhaps the most path-breaking measure is the Simplified GST Registration Scheme for Small and Low-Risk Businesses. By introducing automated approvals within three days, the government has dramatically reduced entry barriers, which will cut compliance costs, encourage formalisation, and allow MSMEs to expand into new markets with greater ease.

Given that MSMEs are the backbone of India’s economy — contributing to jobs, exports and innovation — the significance of this step cannot be overstated.

Institutional reform has also received a boost with the operationalisation of the Goods and Services Tax Appellate Tribunal (GSTAT). By enabling faster and fairer resolution of disputes, GSTAT will strengthen confidence in the system and reduce case backlogs. This signals that GST is not just about revenue collection but also about building a fair and predictable tax framework that businesses can trust.

The broader message is equally important. The streamlined two-rate GST structure (a standard rate of 18% and a merit rate of 5% with a special de-merit rate of 40% for a select few goods and services) aligns India more closely with global best practices, moving it to the kind of tax regime that advanced economies employ. For international investors, the reforms send a strong signal of policy stability, predictability and ease of doing business. In a world where global supply chains are being reconfigured, India is positioning itself not just as a vast market but also as a reliable and competitive investment destination.

A pathway to economic expansion

Of course, reforms are never the end of the road. Implementation will be key, and challenges such as delays and procedural complexities still need attention. But what stands out is the intent. The government has shown that it is listening to industry, willing to act decisively, and committed to building a tax system that fuels, rather than impedes, growth.

GST 2.0 is more than just a tax reform. It is an economic reform that promises to boost consumption, empower MSMEs, strengthen competitiveness, and reinforce India’s growth momentum. It lays the foundation for India’s next phase of economic expansion.

The story of GST has always been one of bold ambition. With these reforms, India has taken a decisive step toward realising that ambition. For businesses, consumers and policymakers alike, this is not just an adjustment of rates. It is the start of a new chapter in India’s growth journey.

Harsha Vardhan Agarwal is President, Federation of Indian Chambers of Commerce and Industry (FICCI)

Published – September 06, 2025 12:08 am IST

Union Finance Minister Nirmala Sitharaman will chair the 56th GST Council meeting on September 3. File.
| Photo Credit: PTI

The GST Council is the governing body for Goods and Services Tax implementation in India, comprising representatives from both the central and state governments. The GST Council consists of 33 members from the Central Government and State Governments. They are:

1. The Union Finance Minister (Chairperson)

2. The Union Minister of State in charge of Revenue or Finance

3. The Minister in charge of Finance or Taxation or any other Minister nominated by each State Government

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

A meeting of the Council is duly constituted when it is presided over by the Chairperson with at least one-half of the Members of the Council being present.

Here is the list of 33 members of the GST Council:

Chairperson: Nirmala Sitharaman

Union Minister of State (Finance): Pankaj Chaudhary

Members from the States:

1. Andhra Pradesh: Payyavula Keshav

2. Arunachal Pradesh: Chowna Mein

3. Assam: Ajanta Neog

4. Bihar: Samrat Chaudhary

5. Chhattisgarh: O.P. Choudhary

6. Delhi: Rekha Gupta

7. Goa: Pramod Sawant

8. Gujarat: Kanubhai Desai

9. Haryana: J.P Dalal

10. Himachal Pradesh: Harshvardhan Chauhan

11. UT of Jammu & Kashmir: Omar Abdullah

12. Jharkhand: Rameshwar Oraon

13. Karnataka: Krishna Byre Gowda

14. Kerala: K.N. Balagopal

15. Madhya Pradesh: Jagdish Devda

16. Maharashtra: Ajit Pawar

17. Manipur: Sapam Ranjan Singh

18. Meghalaya: Conrad Sangma

19. Mizoram: Lalduhawma

20. Nagaland: K.G. Kenye

21. Odisha: Mohan Charan Majhi

22. Puducherry: K. Lakshminarayanan

23. Punjab: Harpal Singh Cheema

24. Rajasthan: Gajendra Singh

25. Sikkim: B.S. Panth

26. Tamil Nadu: Thangam Thennarasu

27. Telangana: Bhatti Vikramarka Mallu

28. Tripura: Pranjit Singha Roy

29. Uttarakhand: Prem Chand Agarwal

30. Uttar Pradesh: Suresh Kumar Khanna

31. West Bengal: Chandrima Bhattacharya

Voting mechanism

The GST Council takes decisions through a consensus-based approach during its meetings. When any proposal is put to a vote, the Central Government holds a one-third weightage of the total votes cast in the GST Council meeting. The votes of all the State Governments taken together have a weightage of two-thirds of the total votes cast in the meeting. Every decision of the meeting is taken only if the total weighted votes of the Members present and voting in favour of the proposal is equal to or greater than three-fourths.

As many as 55 meetings of the GST Council have been held so far, and its decisions have had a significant impact on the GST implementation in India. According to the rules, the Council is to meet at least once a quarter.

The 56th GST Council is meeting in New Delhi for two days beginning September 3 (Wednesday) to discuss the proposed pruning of rates. During this meeting, the GST Council is expected to discuss the recommendations of the various Groups of Ministers it has constituted, including the issue of reforming the GST system into a two-rate structure in line with the Central Government’s recommendations.

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