GST Council recommends sweeping Tax reforms: New GST rates bring relief for common man | Highlights

The 56th GST Council meeting finalized significant tax reforms in India, effective September 22, 2025. Key changes include a simplified two-tier GST structure of 5% and 18%, substantial rate cuts on essential goods (food, medicines, healthcare supplies), and reduced rates for several sectors (agriculture, construction, renewable energy). These reforms aim to boost the economy, improve living standards, and ease business operations, particularly for small enterprises.

GST_2.0_Reforms

Chandan Singh | Updated on: Sep 06, 2025 | 10:00 AM

New Delhi: The 56th GST Council meeting has come up with its recommendations for the rate rationalisation of GST. The reforms span multiple sectors and is set to affect the major populace of India. These reforms aim to raise living standards for all citizens while promoting ease of doing business, especially for small traders and entrepreneurs.

The Council endorsed sweeping reforms with a multi-sectoral approach, targeting common citizens, farmers, labour-intensive industries, and critical growth sectors. The GST council recommended that these changes are to be implemented in effect from 22nd September.

"GST Council recommends GST rates on services will be implemented with effect from 22nd September 2025" said a govt document.

GST 2.0 Reforms: Key Highlights

Two-tier GST structure: Transition from the existing four-tier GST rate system to a two-rate "Simple Tax” framework. Merit Rate of 5 percent, and standard rate of 18 percent. A special de-merit rate of 40 percent for select goods and services such as tobacco gambling etc.
Insurance Sector Relief: Full GST exemption on all individual life insurance products viz term life, ULIPs, and endowment plans as well as their reinsurance.

Daily Essentials: Reduction of GST to 5 percent from 12 percent and 18 percent on everyday products viz hair oil, soaps, shampoos, toothbrushes, toothpaste, bicycles, kitchenware, and other household items. NIL rate on UHT (Ultra-high-temperature processing milk), packaged paneer and chhena, and all domestic breads such as roti, paratha, and parotta. Food items like namkeens, sauces, pasta, noodles, chocolates, coffee, preserved meat, cornflakes, butter, and ghee now set to attract taxes at 5 percent instead of 12percent and 18 percent.
Health and Medicines: Zero GST levy on 33 lifesaving drugs and 3 critical medicines for cancer, rare diseases, and chronic ailments. Further, rate cut on all other medicines down from 12 percent to 5 percent. Reduction of GST on medical devices and diagnostic supplies such as glucometers, reagents, bandages, diagnostic kits from 12 percent to 5 percent. GST on Medical apparatus and equipment for surgery, dentistry, veterinary care, and lab use down from current 18 percent to 5 percent.
Agriculture & Rural Economy: GST on farm equipment like tractors, cultivation, harvesting, threshing, and composting machines reduced from 12 percent to 5 percent. The GST on fertilizer inputs like sulphuric acid, nitric acid, and ammonia reduced from 18 percent to 5 percent.

Labour-Intensive Industries: GST on handicrafts, marble, granite blocks, and intermediate leather goods reduced from 12 percent to 5 percent.
Construction & Housing: GST on cement brought down from 28 percent to 18 percent, further easing construction and housing costs making houesing afforable for common man.
Renewable Energy: GST reduced from 12 percent to 5 percent on renewable energy devices and components, boosting green transition efforts.
Auto & Transport Sector: GST on small cars and motorcycles having lower or equal to ≤350cc cut from 28 percent to 18 percent.. Buses, trucks, and ambulances now taxed at 18 percent down from 28 percent in the earlier regime. Three-wheelers and auto parts uniformly taxed at 18 percent..
Institutional Measures for dispute redressal: The GST council further recommended that GST appealation authority start accepting appeals by September 2025 and begin hearing by December.