The GST Council’s recommendation to reduce the taxation rate on renewable energy devices, relating to solar, wind and biogas, and on parts required to manufacture them, from 12% to 5% has been welcomed by the industry as a step towards spurring domestic manufacturing by easing capital expenditures. Furthermore, industry associations stipulate this may translate to potentially lower tariffs for consumers.  

A conducive environment to manufacture 

Speaking to The Hindu, Subrahmanyam Pulipaka, CEO at the industry body National Solar Energy Federation of India (NSEFI) articulated the move as a “positive step” and adhering to a long-standing request of the industry for a return to status quo. For perspective, the GST on critical components of solar projects was hiked from 5% to 12% following the 45^th Council Meeting in 2021. With the latest return to status quo, Mr. Pulipaka observed, “The effective tax rate would be around 9% from the existing approx. 14%” Solar projects are taxed at a 70:30 ratio, wherein the greater share accounts for procurement costs and those towards capital expenditures, with the latter accounting for services which would continue to be taxed at 18%.  

The CEO further reflected about an increased scope with the government’s mandate for mandatory use of India-made solar cells in panels. Companies have been accorded a June 2026 deadline to meet the criteria to continue being eligible to participate in government procurement programmes. “It (the tax revision) translates to on one hand increasing domestic manufacturing share in installations every year, and with the rationalisation it offers a conducive way of looking at the (manufacturing) ecosystem.”  

Cost reductions  

Manish Singh, Secretary General at the Indian Wind Energy Association (IEWA) held the reduced taxation on the 70% component would translate to lower capital expenditures, effectively implying that the cost of producing energy would reduce. However, Mr. Singh noted that it would be upon the discoms to pass the newly received cushion to the final consumer.  

The Secretary General further stated that this would also be beneficial to companies borrowing money to institute projects. “For example, if they were borrowing some ‘X’ money to implement 1 MW of wind turbine, that would now stand reduced by 7% (with taxation reduced from 12% to 5%),” he stated, adding, “Thus, they would have to borrow lesser money for capital expenditures and pay less money as interest”.  

Industry optimistic  

The reduction in tax rates has also been the subject of much enthusiasm for companies operating in the realm.  

Ranjit Kulkarni, Vice President and General Manager of the Energy and Sustainability Solutions at Honeywell India welcomed the move. He told The Hindu, “High costs have always been one of the biggest hurdles to wider adoption of clean technologies.” According to him, the reduction “boosts manufacturing, signals policy stability and aligns with ESG goals – building investor confidence in India’s renewable energy sector.”  

Other than the reduction in GST on equipment and manufacturing equipment, the GST Council also recommended terminating compensation cess on coal and merging it into a higher slab of 18%. Prior to the rationalisation, coal attracted 5% GST plus compensation cess of ₹400/ton. Sumant Sinha, founder of the clean energy providing company ReNew, observed the move would help bring down the costs of thermal power. Reflecting on the larger paradigm, he stated, “Broader rationalisation will further stimulate domestic consumption and encourage export sectors.” 

The goods and services tax overhaul is set to deliver major price cuts for car buyers this festive season across segments as the entry-level and mid-segment cars priced up to ₹14 lakh see upto 13% reduction in GST and cess making them more attractive to a price sensitive segment, and high-end cars with engines above 1200 cc too set to become 7–10% cheaper.

Small cars on petrol, LPG and CNG with engines below 1200 cc and diesel cars of up to 1,500 cc with length of up to 4m will attract a GST of 18% instead of 28%. The cess of 1% and 3% will now longer be applicable. 

Read:GST Council meeting LIVE

All mid-sized and large cars as well as SUVs up to and above 1500cc and over 4m in length will attract a higher GST of 40% instead of 28%. But the net savings of 7 to 10% come from a complete removal of cess, which stood at 17% for passenger vehicles upto 1500cc engine, 20% for those with over 1500 cc engine, and 22% for SUVs. 

“The benefit is greater for entry and mid-level segment as there is price sensitivity. The news will definitely bring cheer to buyers and we expect more footfalls at showrooms,” says Vinkesh Gulati, vice president, Automotive Skill Development Council and former president, FADA. 

There is also small relief expected during vehicle servicing and repairs as the GST on spare parts has been brought down to 18% from 28%, but due to the varying taxation for different items such as rubber or fiber the eventual benefit will only accrue where there is a net drop.

But dealerships rue that the implementation of the new rates only comes into effect three weeks later on September 22. They fear that since this will result in some buyers postponing their purchase, of which some may eventually lose interest either due to an illness or some other expense.

However, dealerships are also nervous about a lack of clarity on what happens to the cess for the cars that they have already purchased from OEMs but not yet sold . For such cars they deposit a GST credit, and an actual GST amount after sales is logged against it. Estimated cess loss to dealers will be ₹2,500 crore. Some say that implementation date of September 22 will actually lead to loss of a small percentage of buyers, who will push their purchase by three weeks and then may divert their spend on a vacation or for other reasons. 

Due to the removal of cess, dealerships are also staring at a loss of ₹2,500 crore because of credit payments they have made on the cess for the inventory they have already purchased from automakers. Dealers deposit the cess as a credit item at the time of their purchase, and make the actual deposit on the GST portal once they sell the same car to a buyer. 

The Goods and Services Tax (GST) Council began its two-day meeting on Wednesday (September 3, 2025), with proposals on the agenda to rationalise GST rate slabs, reduce tax incidence, and simplify GST procedures.

The proposals before the Council — first mooted by the Union government on Independence Day — include reducing the number of GST rates by doing away with the 12% and 28% slabs as well as the Compensation Cess, while retaining the 5% and 18% slabs, and also introducing a new 40% rate.

Also read | Who are the members of the GST Council and what is their voting power?

The GST Council will also deliberate upon the Centre’s proposals to simplify and speed up the GST registration, filing, and returns processes.

Common man to benefit

The Centre says the rate rationalisation will benefit “the common man, women, students, middle class, and farmers”, claiming that both common-man items and aspirational goods will see lower tax rates if its proposals are accepted by the GST Council.

According to sources, the proposal will see 99% of the items in the 12% slab moving to 5%, and 90% of the items in the 28% slab moving to 18%. The rest of the items in the 28% slab — mainly sin and luxury goods — will move to the 40% slab.

Though the Centre has not stated the likely revenue impact of these rate cuts, economists have projected annual revenue losses ranging between ₹60,000 crore to ₹1.8 lakh crore.

States’ concerns

The Finance Ministers of Himachal Pradesh, Jharkhand, Karnataka, Kerala, Punjab, Tamil Nadu, Telangana, and West Bengal — all non-BJP ruled States — met in New Delhi on Friday. They drafted a note laying out their concerns over the revenue shortfall due to these rate cuts and their proposals for how the Centre could protect States’ revenues. Those proposals, too, will be discussed by the GST Council during its ongoing meeting.

The Telugu Desam Party — which holds power in Andhra Pradesh and is a member of the ruling National Democratic Alliance at the Centre — has thrown its support behind the Union government’s proposals.

“As an alliance partner, we are supporting the Centre’s proposal of GST rate rationalisation,” Andhra Pradesh Finance Minister Payyavula Keshav told reporters ahead of the Council meeting. “It is in favour of the common man.”

Benchmark equity indices Sensex and Nifty closed higher in a volatile session on Wednesday (September 3, 2025), driven by a rally in metal stocks and optimism related to the GST Council meeting.

After oscillating between highs and lows, the 30-share BSE Sensex jumped 409.83 points or 0.51%, to settle at 80,567.71. During the day, the benchmark hit a high of 80,671.28 and a low of 80,004.60, gyrating 666.68 points.

The 50-share NSE Nifty climbed 135.45 points or 0.55%, to 24,715.05.

The GST Council is meeting in New Delhi for two days to discuss the proposed pruning of tax rates to 5% and 18%.

Among Sensex firms, Tata Steel jumped the most by 5.90%. Titan, Mahindra & Mahindra, ITC, Eternal, State Bank of India, and Trent were among the other gainers.

However, Infosys, NTPC, Hindustan Unilever, TCS, Adani Ports and Bharti Airtel were among the laggards.

Indian equities closed higher after a mixed start to the session, buoyed by expectations of a consumption-led stimulus from the potential GST slab rationalisation.

“In the near term, market sentiment hinges on the outcome of the GST Council meeting with traction on consumption-oriented stocks and sectors,” Vinod Nair, Head of Research, Geojit Investments Limited, said.

In Asian markets, South Korea’s Kospi settled in positive territory while Japan’s Nikkei 225 index, Shanghai’s SSE Composite index and Hong Kong’s Hang Seng ended lower.

Equity markets in Europe were trading higher.

U.S. markets ended lower on Tuesday (September 2, 2025).

Foreign Institutional Investors (FIIs) offloaded equities worth ₹1,159.48 crore on Tuesday (September 2, 2025), according to exchange data.

Global oil benchmark Brent crude dropped 1.52% to $68.09 a barrel. On Tuesday (September 2, 2025), the Sensex declined 206.61 points or 0.26%, to settle at 80,157.88. The Nifty dipped 45.45 points or 0.18%, to 24,579.60.

Benchmark equity indices Sensex and Nifty declined in early trade on Wednesday (September 3, 2025), tracking weak global market trends and relentless foreign fund outflows.

Caution also prevailed in the equity market ahead of the GST Council meeting beginning Wednesday (September 3, 2025).

The 30-share BSE Sensex declined 153.28 points to 80,004.60 in early trade. The 50-share NSE Nifty dipped 46.4 points to 24,533.20.

From the Sensex firms, Infosys, Bajaj Finance, Hindustan Unilever, Bharti Airtel, ICICI Bank and Trent were among the laggards.

However, Tata Steel, Bharat Electronics, Eternal, ITC and Mahindra & Mahindra were among the gainers.

In Asian markets, South Korea’s Kospi traded in positive territory while Japan’s Nikkei 225 index, Shanghai’s SSE Composite index and Hong Kong’s Hang Seng quoted lower.

U.S. markets ended lower on Tuesday (September 2, 2025).

Foreign Institutional Investors (FIIs) offloaded equities worth Rs 1,159.48 crore on Tuesday (September 2, 2025), according to exchange data.

The GST Council is meeting in New Delhi for two days to discuss the proposed pruning of rates.

“All eyes are on the two-day GST Council meeting beginning today. With global cues mixed and domestic policy in focus, Indian markets may see stock-specific action, especially in FMCG, consumer discretionary, and sin-tax-linked sectors like cigarettes,” Hariprasad K, Research Analyst and Founder — Livelong Wealth, said.

Global oil benchmark Brent crude dipped 0.39% to $68.87 a barrel.

On Tuesday (September 2, 2025), the Sensex declined 206.61 points or 0.26%, to settle at 80,157.88. The Nifty dipped 45.45 points or 0.18%, to 24,579.60.

Prime Minister Narendra Modi’s “Diwali gift” to the people of India, of reforms to the Goods and Services Tax (GST) system, will likely be across three pillars — structural reforms, rate rationalisation, and ease of living — and could entail a shift to a two-rate GST system from the current five-rate system.

“The government will bring next generation GST reforms, which will bring down tax burden on the common man,” Mr. Modi said during his speech at Red Fort in New Delhi on India’s 79th Independence Day. “It will be a Diwali gift for you.”

Independence Day LIVE

The Ministry of Finance, elaborating on the Prime Minister’s announcement in a press release, said that the Central Government has sent its proposal on GST rate rationalisations and reforms to the Group of Ministers (GoM) that had been constituted by the GST Council to examine this issue.

It added that the GST Council would in its next meeting — the date for which is yet to be announced — deliberate on the recommendations of the GoM and would strive to implement the bulk of the reforms within this financial year.

“Key areas identified for next-generation reforms include the rationalisation of tax rates to benefit all sections of society, especially the common man, women, students, middle class, and farmers,” the Finance Ministry said.

“Reforms will also seek to reduce classification-related disputes, correcting inverted duty structures in specific sectors, ensuring greater rate stability, and further enhancing ease of doing business,” it added.

One of the most major changes it announced was to “essentially move towards simple tax with 2 slabs – standard and merit”. It added that ‘special rates’ would apply only on “select few items”.

The second major change is an attempt to reduce taxes on “common-man items and aspirational goods”. 

“This would enhance affordability, boost consumption, and make essential and aspirational goods more accessible to a wider population,” the Ministry added.

Towards the ‘Ease of Living’, the Centre has proposed using technology to speed up and ease the GST registration process, implement pre-filled returns, thus reducing manual intervention and eliminating mismatches, and processing refunds in a faster and more automated manner. 

“In the true spirit of cooperative federalism, the Centre remains committed to working closely with the States,” the Finance Ministry said. “It will be building a broad-based consensus with the States in the coming weeks, to implement the next generation of reforms as envisioned by Prime Minister Shri Narendra Modi.”

However, the release stopped short of stating the date of the next meeting of the GST Council. With the last meeting taking place in December 2024, the next meeting — supposed to take place once a quarter — is long overdue.

“The GST Council, when it meets next, will deliberate on the recommendations of the GoM, and every effort will be made to facilitate early implementation so that the intended benefits are substantially realised within the current financial year,” the release said.