The Ministry of Finance issued a press release containing the recommendations of the 56th GST Council meeting. This was a momentous occasion covering several GST rate rationalisation measures and trade reforms.
Briefly, the GST Council has recommended the following simplified rate structure, with the erstwhile 12% for select items proposed to be eliminated:
- 5% merit rate for essentials
- 18% standard rate
- 40% demerit rate for sin or luxury goods
These measures have been recommended across multiple sectors – especially essential items, life and health insurance, labour-intensive industries, agriculture, healthcare, and transportation – with the intent to boost affordability and facilitate ease of doing business.
The CBIC has also issued Frequently Asked Questions ('FAQs') to clarify potential queries, both sectoral and general. A key clarification in the FAQs is that compensation cess will be discontinued for all goods that would attract the 40% rate once it becomes effective.
Key recommendations are summarised below:
Key Rate Changes in Services (proposed to be effective from 22 September 2025)
|
Sector |
Description |
Original rate |
Proposed rate |
|
Insurance |
All individual health insurance policies (including family floater policies and policies for senior citizens) and reinsurance thereof |
18% |
Nil |
|
All individual life insurance policies – whether term life, ULIP, or endowment policies – and reinsurance thereof |
18% |
Nil |
|
|
Third-party insurance services of "goods carriage" |
12% |
5% with input tax credit ('ITC') |
|
|
Passenger Transport |
Supply of air transport of passengers other than in economy class |
12% with ITC |
18% with ITC |
|
Supply of passenger transport by any motor vehicle, where the cost of fuel is included in consideration OR Renting of any motor vehicle (with operator) designed to carry passengers, where the cost of fuel is included in consideration |
5% with ITC of input services (in the same line of business) |
5% with ITC of input services (in the same line of business) |
|
|
12% with ITC |
18% with ITC |
||
|
Goods Transport |
Supply of transport of goods in containers by rail, by any person other than Indian Railways |
12% with ITC |
5% without ITC |
|
18% with ITC |
|||
|
Supply of transportation of natural gas, petroleum crude, motor spirit, high-speed diesel or aviation turbine fuel (ATF) through pipeline |
5% without ITC |
5% without ITC |
|
|
12% with ITC |
18% with ITC |
||
|
Supply of Transport of goods by goods transport agency (GTA) |
5% without ITC (reverse charge or forward charge) |
5% without ITC(reverse charge or forward charge) |
|
|
12% with ITC |
18% with ITC |
||
|
Supply of multimodal transport of goods within India |
12% with ITC |
5%, where no leg of transport is by air, with restricted ITC (i.e., 5% of input services of goods transportation) |
|
|
18% with ITC |
|||
|
Supply of renting of goods carriages (with operator), where fuel cost is included in consideration |
12% with ITC |
5% with ITC of input services (in the same line of business) |
|
|
18% with ITC |
|||
|
Entertainment |
Admission to casinos or race clubs, or any place having casinos or race clubs, or sporting events such as the IPL |
28% with ITC |
40% with ITC |
|
Services by a race club for licensing bookmakers in such club |
|||
|
Specified Actionable Claims (betting, casinos, gambling, horse racing, lottery, online money gaming) defined as goods (Corresponding changes in the lottery valuation rules are also being carried out) |
|||
|
Leasing |
Leasing or rental services, without operator, of goods |
28% with ITC |
40% with ITC |
|
Construction |
Composite supply of specified works contract and associated services |
12% with ITC |
18% with ITC |
Key Rate Changes in Goods (proposed to be effective from 22 September 2025, except for pan masala/tobacco related products, which will take effect from a date to be notified)
|
Sector |
Description |
Original rate |
Proposed rate |
|
Automotive or Transportation |
Small cars; motorcycles with engine capacity up to 350 cc; and three wheelers, as specified |
28% |
18% |
|
Buses, trucks and ambulances as specified |
|||
|
Automotive parts as specified |
|||
|
Luxury motor cars motorcycles with engine capacity exceeding 350 cc, |
28% |
40% |
|
|
Aircraft for personal use, yachts, and other vessels for pleasure or sport |
28% |
40% |
|
|
Food |
All goods under chapter heading 2202 10 (including aerated waters), containing added sugar or other sweetening matter, or flavouring |
28% |
40% |
|
Caffeinated beverages, specified carbonated beverages |
|||
|
Other non-alcoholic beverages |
18% |
40% |
|
|
Pan masala and specified tobacco products |
28% |
40% |
|
|
Specified cocoa products and chocolates |
18% |
5% |
|
|
Pastry, cakes, biscuits and other bakery wares, whether or not containing cocoa; communion wafers; empty cachets of a kind suitable for pharmaceutical use; sealing wafers; rice paper; and similar products |
|||
|
Ice cream and other edible ice, whether or not containing cocoa |
|||
|
|
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|
Specified sugars/sugar-confectionery under chapter headings 1702/1704 |
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|
Namkeens, bhujia, mixtures, chabena, and similar edible preparations ready for consumption (other than roasted gram), pre-packaged and labelled |
12% |
5% |
|
|
|
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|
Specified nuts, fruits and specified nuts or fruit products |
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|
Specified animal or microbial fats/oils/lard |
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|
Specified meat and seafood products |
|||
|
Certain vegetables, mushrooms and truffle preserved or prepared as specified |
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|
Sugar boiled confectionary under Chapter 1704 |
|||
|
Pasta, whether or not cooked or stuffed (with meat or other substances) or otherwise prepared, such as spaghetti, macaroni, noodles, lasagne, gnocchi, ravioli, cannelloni; couscous, whether or not prepared |
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|
Roasted chicory and other roasted coffee substitutes, and extracts, essences and concentrates thereof |
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All goods under chapter heading 2103, including sauces and preparations therefor, mixed condiments and mixed seasonings; mustard flour and meal and prepared mustard, curry paste, mayonnaise and salad dressings |
|||
|
Khakhra, pizza bread, chapathi or roti, paratha, parotta, and other Indian breads, by any name called |
5% or 18% |
Nil |
|
|
Consumer electronics |
Specified air-conditioning machines, dishwashing machines and television sets |
28% |
18% |
|
Renewable energy |
Specified renewable energy devices and parts for their manufacture such as solar power generators, wind mills, Wind Operated Electricity Generator (WOEG), Ocean waves/tidal waves energy devices/plants amongst others |
12% |
5% |
|
Fuel Cell Motor Vehicles including hydrogen vehicles based on fuel cell technology |
|||
|
Healthcare |
Specified life-saving drugs and medicines |
12% or 5% |
Nil |
|
Apparatus for medical, surgical, dental, or veterinary usage, or for physical or chemical analysis |
12% or 18% |
5% |
|
|
Specified medical equipment and devices, such as wadding, gauze, bandages, diagnostic kits and reagents, blood-glucose-monitoring system (glucometers) |
|||
|
Textile |
Specified man-made fibres, yarns and textile products |
12% or 18% |
5% |
|
Agriculture |
Specified machinery/equipment used for agriculture, including specified tractors and tractor spares |
12% or 18% |
5% |
|
Specified fertilisers |
|||
|
Essentials for the common man |
Specified products: hair oil, toilet-soap bars, shampoos, toothbrushes, toothpaste, bicycles, tableware, kitchenware, other household articles |
12% or 18% |
5% |
Some other sectors/goods for which rate reduction has been recommended include cement, leather, wood, and handicrafts, as specified.
Other Key Recommendations
Intermediary Services
- Proposal to amend the place of supply for 'intermediary services' from the location of the service provider to the location of the service recipient by omitting clause (b) of section 13(8) of IGST Act 2017. This is expected to be a major welcome development for intermediary services providers who may now be able to claim zero-rated or export benefits on services to offshore customers.
Local Delivery Services
- Proposal to notify the e-commerce operator as the person liable to pay GST (under Section 9(5) of the CGST Act) on local-delivery services supplied through it, where the supplier is not liable for registration under the GST law.
- It is also proposed that the above services be excluded from the scope of GTA services
Operationalisation of the Goods and Services Tax Appellate Tribunal (GSTAT)
- The GSTAT is to be made operational for accepting appeals before the end of September and to commence the hearings before the end of December 2025.
- A proposed date of 30 June 2026 has been recommended as the limitation period for filing backlog appeals.
- The Principal Bench of the GSTAT will also serve as the National Appellate Authority for Advance Rulings.
Post-Sale Discount
- Proposal to omit the requirement to (i) establish that the discount is provided under an agreement entered into before or at the time of supply and (ii) specifically link the discount to relevant invoices for the supplier to be able to claim deduction
- Proposal to provide that discount be granted by issuaning of credit note, and to make corresponding amendments to provide for reversal of the related ITC
- A circular is to be issued to clarify issues surrounding post-sale discount, namely: (i) non-reversal of I TC on account of post-sale discounts provided through financial/commercial credit notes; (ii) treatment of post-sale discounts provided by a manufacturer to adealer as additional consideration in the transaction between the dealer and the end-customer (iii) treatment of post-sale discounts as consideration in lieu of promotional activities performed by the dealer
- It is proposed to rescind Circular No.212/6/2024-GST dated 26th June 2024, which provided a mechanism to ensure compliance with the conditions to claim deduction of post-sale discounts under Section 15
Provisional Refund (proposed to be operationalised with effect from 1 November 2025)
- Proposal to sanction, on a provisional basis and based on risk assessment of the claimant, a 90% refund pertaining to zero-rated supplies of goods or services or both (i.e. exports or supplies to a Special Economic Zone (SEZ) developer/unit for authorised operations)
- Proposal to sanction, on a provisional basis and based on risk-assessment of the claimant, a 90% refund pertaining to inverted-duty-structure cases
Other Proposals
- Amendment to the CGST Act to provide for GST refunds in respect of low-value export consignments
- Simplified GST registration scheme for small and low-risk businesses whose monthly output-tax liability to registered persons does not exceed INR 2.5 lacs.
- Simplified registration scheme for small suppliers who supply through e-commerce operators across multiple states and face challenges in maintaining a principal place of business in each state, as currently required under the GST framework
- Proposal to levy GST on retail sale price (RSP) value rather than to the transaction value for pan masala, cigarettes, gutkha, chewing tobacco, zarda, scented tobacco and unmanufactured tobacco.
Footnotes
1 The press release sets out the GST Council's recommendations, which are yet to be formalised via issuance of notifications/amendments to the law.
2 Applicable chapter/tariff headings have not been specified in this update and should be separately verified.
Originally published 4 September 2025
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
