Council adopts citizen-centric reforms with a multi-sectoral focus; Prime Minister’s Red Fort vision takes shape as essential goods and services move to lower or nil tax brackets
New Delhi, September 3, 2025:
The Goods and Services Tax (GST) Council, in its 56th meeting held on Wednesday, approved sweeping next-generation reforms to rationalise India’s indirect tax system into a simplified two-rate structure.
Union Finance Minister Nirmala Sitharaman announced that the new regime will take effect from September 22, 2025, for most products and services, while tobacco and related products will transition later on a date to be specified.
These reforms, described as strategic, principled, and citizen-centric, reflect Prime Minister Narendra Modi’s Independence Day declaration from the ramparts of the Red Fort on August 15, 2025. The Prime Minister had pledged a simpler GST regime that enhances the quality of life for every last citizen.
Key Features of the Reforms
- Two-rate structure: A Merit Rate of 5% and a Standard Rate of 18%, with a special de-merit rate of 40% retained for a select few goods and services.
- Focus on the common man: Items of daily use, healthcare, education, agriculture, and labour-intensive sectors moved into the 5% or NIL bracket.
- Ease of business: Reforms simplify compliance, rationalise rates, and address long-pending issues such as inverted duty structures in textiles and fertilizers.
- Healthcare relief: Complete GST exemption for individual life and health insurance policies, including family floaters and senior citizen coverage.
Rate Rationalisation Highlights
✅ Exemptions (NIL GST)
- Insurance: All individual life insurance policies (term, ULIP, endowment) and all individual health insurance policies.
- Food: UHT milk, packaged paneer/chena, and all Indian breads (chapati, roti, paratha, parotta).
- Medicines: 33 life-saving drugs from 12% to NIL; 3 critical medicines for cancer, rare, and chronic diseases from 5% to NIL.
✅ 5% Slab (Down from 12% or 18%)
- Household essentials: Hair oil, soap bars, shampoos, toothpaste, toothbrushes, tableware, kitchenware, and other household articles.
- Food & FMCG: Packaged namkeens, bhujia, sauces, pasta, instant noodles, chocolates, coffee, preserved meat, cornflakes, butter, ghee.
- Agriculture: Tractors, soil preparation and harvesting machinery, threshers, balers, composting machines.
- Labour-intensive goods: Handicrafts, marble/travertine blocks, granite blocks, intermediate leather goods.
- Healthcare devices: Bandages, diagnostic kits, reagents, blood glucose monitors (glucometers), and other medical equipment.
- Renewables: Renewable energy devices and components.
- Hospitality: Hotel accommodation up to ₹7,500 per night.
- Services: Gyms, salons, barbers, yoga centres, and other personal well-being services.
✅ 18% Slab (Standard Rate)
- Electronics: Mobile phones, laptops, TVs (all sizes now under 18%), refrigerators, washing machines, dishwashers, air-conditioners.
- Transport: All auto parts at 18%, three-wheelers from 28% to 18%.
- Cement: Reduced from 28% to 18%.
- Vehicles: Small cars and motorcycles (≤350 cc), buses, trucks, and ambulances down from 28% to 18%.
Correction of Inverted Duty Structures
- Textiles: Manmade fibre from 18% to 5%; yarn from 12% to 5%.
- Fertilizers: Sulphuric acid, nitric acid, and ammonia cut from 18% to 5%.
GST on Medicines & Medical Devices
- General medicines: Reduced from 12% to 5%.
- Medical devices & apparatus: From 18% to 5% for surgical, dental, veterinary, physical, and chemical analysis devices.
- Supplies: Bandages, wadding, gauze, and diagnostic kits from 12% to 5%.
Institutional Reforms
- The Goods and Services Tax Appellate Tribunal (GSTAT) will be operationalised by the end of September 2025, with hearings expected to commence by December 2025.
- GST rates on services will align with the new structure from September 22, 2025.
Finance Minister’s Remarks
“The GST reforms represent a multi-sectoral and multi-thematic focus on improving lives, empowering small traders, supporting labour-intensive industries, strengthening agriculture, and making healthcare and insurance more affordable,” said Sitharaman.
She added that these reforms simplify compliance for businesses while making essential goods and services significantly cheaper for the average household.
Impact
- Consumers: Lower costs for daily-use products, food, medicines, and insurance.
- Farmers: Reduced costs on tractors and agricultural machinery.
- Industry: Boost for FMCG, healthcare, textiles, renewable energy, and hospitality sectors.
- Economy: Increased consumption, simplified tax regime, and a broader insurance base.
📌 Effective Date: September 22, 2025
📌 Slabs: 5%, 18% (+40% for de-merit goods)
