Executive Summary
The 56th meeting of the GST Council unveiled the "GST 2.0" — a landmark overhaul of India's indirect tax regime. More than a technical reset, the reforms mark a shift towards a simpler, more predictable, and globally aligned tax framework. For companies, this means direct changes to cost structures, working capital cycles, and compliance processes. For investors, it strengthens India's reputation as a market steadily moving towards international best practices, reducing tax friction and boosting confidence in long-term capital deployment.
The reforms are aimed at shifting to a simplified two-slab GST structure, reduction of rates across a wide range of goods, including energy equipment, cement, healthcare products, and agricultural machinery. These changes are expected to directly reduce input costs and ease margins. For renewable energy developers, the reduction in GST rate could bring down capital costs of solar and wind projects by nearly 5%, improving tariff competitiveness and project viability. Lower GST on cement and agricultural equipment will reduce infrastructure and agricultural costs, while consumer-facing sectors such as FMCG, automobiles, and hospitality are likely to see stronger consumer demand driven by improved affordability. Cumulatively, these measures are likely to ease input costs, simplify pricing structures, and stimulate demand across critical segments of the economy.
On the services side, the GST exemption on individual life and health insurance policies is likely to increase demand and coverage. At the same time, insurers may face higher operating costs as they lose credit on backend services, which could lead to some adjustments in the premiums. Another major step is the removal of Section 13(8)(b) of the Integrated Goods and Services Tax Act, 2017 (IGST Act), which brings India's place-of-supply rules in line with international practice and gives local services exporters a stronger footing in global markets. For e-commerce and small suppliers, a simplified registration framework is expected to ease entry into multiple states, reduce compliance costs, and open up opportunities for wider reach without heavy administrative overheads.
From an overall corporate standpoint, GST 2.0 marks a shift towards a more stable and transparent system. Companies are likely to face fewer classification disputes, benefit from quicker refunds that improve cash flow, and save on compliance costs with the help of automation and simplified processes. For global players, the changes reflect India's intent to bring its tax framework closer to international standards, a move that should give investors greater confidence in the country's long-term business environment.
Brief Background:
On September 3, 2025, the Union Finance Minister announced the outcome of the 56th GST Council meeting. The Council introduced a series of tax reforms, including revisions to GST rates for products and services across several sectors, and measures to boost trade facilitation. These steps are designed to drive economic growth, ensure tax uniformity, and simplify compliance under GST.
A central focus of the meeting was the launch of next-generation GST reforms aimed at making the tax system more business-friendly. Key measures included rationalizing tax rates through a two-slab structure for most goods, imposing higher rates on sin goods, automating compliance through pre-filled returns, and enabling risk-based provisional refunds for exporters.
The Council's decisions on GST rate changes are expected to significantly impact industries engaged in the production and supply of goods and services across key sectors, including energy, manufacturing, healthcare and insurance.
Measures Recommended for Facilitation of Trade
India's renewable energy sector is poised for a significant boost following the government's announcement to reduce GST on solar and wind equipment. At the recent meeting, the GST Council approved a reduction of tax on solar photovoltaic modules and wind turbine generators from 12% to 5%, marking a key step in the nation's broader strategy to accelerate clean energy adoption.
The GST Council has further recommended the omission of Section 13(8)(b) of the IGST Act, 2017, thereby shifting the place of supply for intermediary services to the location of the recipient in accordance with Section 13(2) of the IGST Act, 2017. This change will align the GST regime with international norms and allow Indian service providers to claim export benefits. Further, structural amendments to Section 15 and Section 34 of the Central Goods and Services Tax Act (CGST Act), 2017, have been proposed to rationalize the treatment of post-sale discounts, mandating the use of credit notes and corresponding input tax credit (ITC) reversals.
The GST Council has also recommended measures to simplify the GST registration framework. An optional simplified registration scheme has been proposed for small and low-risk applicants, under which registration shall be granted automatically within 3 working days, provided that the applicant's output tax liability on supplies to registered persons does not exceed ₹2.5 lakh per month. Additionally, the Council has given approval for a simplified registration mechanism for small suppliers, operating through electronic commerce operators across multiple states, thereby removing the need for maintaining a principal place of business in each state for these small suppliers.
Additionally, the GST Council has introduced a series of reforms with a distinct focus on trade facilitation and reduction of compliance burdens. A major recommendation pertains to the sanction of risk-based provisional refunds in respect of both zero-rated supplies and cases involving the inverted duty structure. The Council has proposed amendments to Rule 91(2) of the CGST Rules, 2017, and Section 54(6) of the CGST Act, 2017, to enable the grant of 90% of refund claims on a provisional basis, subject to system-based risk evaluation. These provisions will come into effect from 1st November 2025, and are expected to substantially ease liquidity constraints for exporters and manufacturers. Further, an amendment to Section 54(14) of the CGST Act has also been recommended to remove the threshold limit on refund claims arising from low-value export consignments, thereby extending relief particularly to small exporters using courier and postal modes.
Major Changes Recommended in GST Rates
|
PARTICULARS |
PREVIOUS GST RATE |
PROPOSED NEW GST RATE |
|---|---|---|
|
Hair oil, toilet soap bars, shampoos, toothbrushes, toothpaste, bicycles, tableware, kitchenware, other household articles. |
18% or 12% |
5% |
|
Ultra-high temperature (UHT) milk, pre-packaged and labelled chena or paneer, Indian breads (chapati or roti, paratha, parotta, etc.). |
5% |
NIL |
|
Packaged food items such as namkeens, bhujia, sauces, pasta, instant noodles, chocolates, coffee, preserved meat, cornflakes, butter, ghee, etc. |
12% or 18% |
5% |
|
Air-conditioning machines, TVs~32-inch, dishwashing machines, small cars, motorcycles equal to or less than 350 CC. |
28% |
18% |
|
Agricultural goods, such as tractors, agricultural, horticultural or forestry machinery for soil preparation or cultivation, harvesting or threshing machinery, including straw or fodder balers, grass or hay mowers, composting machines etc. |
12% |
5% |
|
Cement |
24% |
18% |
|
Medical apparatus and devices used for medical, surgical, dental or veterinary usage, or for physical or chemical analysis. |
18% |
5% |
|
Small cars and motorcycles equal to or below 350cc, buses, trucks and ambulances. |
28% |
18% |
|
Renewable energy devices |
12% |
5% |
|
Beauty and physical well-being services used by common man including services of gyms, salons, barbers, yoga centres, etc. |
18% |
5% |
|
Labour intensive goods such as handicrafts, marble and travertine blocks, granite blocks, and intermediate leather goods. |
12% |
5% |
|
Hotel accommodation services having value less than or equal to Rs. 7,500 per unit per day or equivalent. |
12% |
5% |
|
33 lifesaving drugs and medicines. 3 lifesaving drugs & medicines used for treatment of cancer, rare diseases and other severe chronic diseases. |
12% 5% |
NIL NIL |
|
All individual life insurance policies and health insurance policies. |
18% |
NIL |
|
Three wheelers |
28% |
18% |
|
Manmade fibre and manmade yarn. |
18% 12% |
5% 5% |
|
Sulphuric acid, nitric acid and ammonia. |
18% |
5% |
|
Uniform rate on all auto-parts irrespective of their HS code. |
18% |
18% |
Our Analysis of the Impact of Changes in the GST Tax Rates
The GST Council has introduced a simplified two-slab GST, intended to reduce classification disputes and streamline compliance. Further, to ease of doing business for small and low-risk operators, the GST Council has recommended automated compliance features such as pre-filled returns and risk-based provisional refunds. E-commerce sellers operating across states will no longer need to maintain a principal place of business in each state, significantly reducing their administrative burden.
News agency Reuters has quoted industry experts as saying that the GST cut will directly reduce the capital costs of solar and wind power projects by approximately 5%. For developers yet to procure equipment, this translates into more competitive tariffs for electricity, benefitting both project viability and consumers.
The removal of Section 13(8)(b) of IGST Act is expected to increase India's competitiveness in the global services market, in addition to harmonizing GST with international tax principles.
In the insurance sector, individual life and health insurance policies have been exempted from GST. This exemption comes at the cost of losing ITC on backend services like IT, rent, and commissions. As a result, insurers may face increased operational costs and there is a possibility of higher base premiums to maintain profitability.
The automobile and transport sectors will benefit from reduced GST rates on small cars, motorcycles, buses, and trucks, while a uniform rate of 18% on auto parts simplifies pricing and compliance. In agriculture, GST cuts on tractors and farm machinery will lower input costs for farmers. Meanwhile, manufacturing and MSMEs will gain from corrections to inverted duty structures in textiles and fertilizers, along with reduced GST on renewable energy devices and handicrafts, boosting competitiveness and sustainability.
From a corporate perspective, GST 2.0 represents a significant shift toward a more predictable and transparent tax environment. For businesses, particularly in consumer goods, automobiles, and renewable energy, the rate reductions are expected to ease input costs, improve working capital efficiency, and strengthen margins. The rationalization of tax slabs and automation of compliance processes will also reduce disputes and compliance costs, enabling corporates to reallocate resources toward growth and innovation. For multinational corporations operating in India, reforms such as the alignment of place-of-supply rules with international practices, and the easing of registration norms for e-commerce suppliers, signal a stronger commitment to global best practices. Overall, these reforms will improve India's investment climate by lowering tax friction, enhancing ease of doing business, and supporting long-term capital deployment decisions.
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