Standard 18%, a Merit 5% and a special De-Merit Rate of 40%

Standard 18%, a Merit 5% and a special De-Merit Rate of 40%

GST Council Approves Major Reforms, Simplifies Tax Structure

CNB World Times

New Delhi, 4^th Sept 25: Next-generation GST reforms, as announced by Prime Minister Shri Narendra Modi from the ramparts of Red Fort on 15th August 2025, represent a strategic, principled, and citizen-centric evolution of the landmark tax framework. These reforms are aimed at enhancing the quality of life of every citizen.

The 56th GST Council meeting, chaired by Union Finance Minister Nirmala Sitharaman, approved reforms with a multi-sectoral and multi-thematic focus. The objective is to improve the lives of all citizens and ensure ease of doing business for all, including small traders and businessmen.

The Council approved rate rationalisation with a focus on the common man, labour-intensive industries, farmers and agriculture, health, and other key drivers of the economy.

The current four-tiered tax rate structure has been rationalised into a citizen-friendly “Simple Tax”. It will now have a two-rate structure with a Standard Rate of 18% and a Merit Rate of 5%. A special de-merit rate of 40% will apply to a select few goods and services.

The Council decided to exempt GST on all individual life insurance policies, including term life, ULIP and endowment policies, along with their reinsurance. This will make insurance affordable for the common man and increase coverage in the country.

GST has also been exempted on all individual health insurance policies, including family floater and senior citizen policies, and their reinsurance.

For common man items, GST has been reduced from 18% or 12% to 5%. These include hair oil, toilet soap bars, shampoos, toothbrushes, toothpaste, bicycles, tableware, kitchenware, and other household articles.

GST has been reduced from 5% to NIL on Ultra-High Temperature (UHT) milk and prepackaged and labelled chena or paneer. All Indian breads, such as chapati, roti, paratha, and parotta, will also be exempt.

Almost all food items will now attract 5% GST instead of 12% or 18%. These include packaged namkeens, bhujia, sauces, pasta, instant noodles, chocolates, coffee, preserved meat, cornflakes, butter, and ghee.

GST has been cut from 28% to 18% on air-conditioning machines, televisions up to 32 inches (all TVs now at 18%), dishwashing machines, small cars, and motorcycles up to 350cc.

GST has been reduced from 12% to 5% on agricultural goods such as tractors and machinery used for soil preparation, cultivation, harvesting, threshing, straw baling, hay mowing, and composting.

Labour-intensive goods will also benefit. GST on handicrafts, marble and travertine blocks, granite blocks, and intermediate leather goods has been reduced from 12% to 5%.

Cement will now attract 18% GST instead of 28%.

GST on 33 lifesaving drugs and medicines has been reduced from 12% to NIL. On three lifesaving drugs and medicines used for treatment of cancer, rare diseases, and other severe chronic diseases, GST has been reduced from 5% to NIL. All other drugs and medicines will now be taxed at 5% instead of 12%.

Medical devices and apparatus used for medical, surgical, dental, or veterinary usage, and for physical or chemical analysis, will attract 5% GST instead of 18%. GST on medical equipment and supplies such as wadding gauze, bandages, diagnostic kits, reagents, and glucometers has been reduced from 12% to 5%.

GST has been cut from 28% to 18% on small cars, motorcycles up to 350cc, buses, trucks, and ambulances. All auto parts will now attract a uniform rate of 18%, irrespective of HS code. GST on three-wheelers has been reduced from 28% to 18%.

Long-pending inverted duty structures have been corrected. In the textile sector, GST on manmade fibre has been reduced from 18% to 5%, and on manmade yarn from 12% to 5%. In the fertilizer sector, GST on sulphuric acid, nitric acid, and ammonia has been reduced from 18% to 5%.

GST has also been reduced from 12% to 5% on renewable energy devices and their parts.

Hotel accommodation services priced at ₹7,500 or below per unit per day will now attract 5% GST instead of 12%.

Beauty and physical well-being services such as gyms, salons, barbers, and yoga centres will now attract 5% GST instead of 18%.

The GST Council has recommended that the new GST rates on services will come into effect from 22nd September 2025.

The Council has also recommended operationalisation of the Goods and Services Tax Appellate Tribunal (GSTAT). It will start accepting appeals before the end of September 2025 and commence hearings before the end of December 2025.