Current Context

In its 56th meeting, the GST Council approved next-generation reforms, moving
towards a simplified two-slab structure of 5% and 18%.
A higher 40% demerit rate will apply only to super luxury, sin, and demerit
goods, streamlining India’s eight-year-old indirect tax regime.

Aim of GST Reforms

The Goods and Services Tax (GST) Council, during its 56th meeting, decided to
revamp the tax structure into a primarily two-rate system.
The GST reforms seek to reduce the tax burden on common people, cut slabs,
ease working capital issues, and improve business efficiency through automated
refunds and registrations.
All rate changes, except for tobacco-related products, will take effect from
September 22 (Navratri’s first day).
Despite state concerns over revenue loss, the meeting concluded in a single day
under Finance Minister Nirmala Sitharaman, with participation from ministers
of 31 states and UTs.
 Key Highlights of GST Reforms
PM Modi welcomed the GST Council’s decision to approve sweeping rate cuts
and structural reforms, calling it a pro-people move benefiting farmers, MSMEs,
middle-class families, women, and youth.

Focus on Common-Use Goods and Services

• The reforms bring major relief on daily-use items:
1. Packaged food (juices, butter, cheese, coconut water, pasta, nuts) reduced
to 5%.
2. Medical items like oxygen, gauze, bandages, diagnostic kits lowered from
12% to 5%.
3. Ultra-high temperature milk, paneer, pizza bread, chapati, khakra, and
erasers made GST-free.
4. Household goods (hair oil, soaps, shampoos, bicycles, kitchenware)
brought down to 5%.

• Tax Cuts on White Goods and Automobiles

1. GST on ACs, TVs, dishwashers cut from 28% to 18%.
2. Small cars (petrol up to 1200 cc/diesel up to 1500 cc) now taxed at 18%.
3. Motorcycles under 350 cc and all auto parts also shifted to 18%.
4. Luxury cars taxed at 40%; electric vehicles remain at 5%.

• Insurance and Services

1. Life and health insurance (including term, ULIP, endowment, and family
floater policies) made GST-exempt.
2. Gyms, salons, barbers, yoga services reduced from 18% to 5%.

• Rationalization of GST Slabs

1. The Council replaced multiple slabs (5%, 12%, 18%, 28%) with a two-slab
system (5% and 18%), plus a 40% demerit rate for sin goods (tobacco, pan
masala, luxury cars).
2. This corrects the inverted duty structure, simplifies compliance, and
reduces disputes.
 • Financial Impact and States’ Concerns
1. Some states flagged potential revenue losses of ₹80,000–1.5 lakh crore,
but consensus prevailed.
2. The Centre estimates the reforms will have a net fiscal implication of
₹48,000 crore on 2023–24 consumption data.

• Sector-Specific Reforms
1. Textiles: GST on manmade fibre cut from 18% to 5%, yarn from 12% to
5%.
2. Fertilisers: Inputs like sulphuric acid, nitric acid, ammonia reduced from
18% to 5%.

GST Reforms 2025: Key Rate Cuts Impact

GST Rate Cuts for Common Man

The latest GST reforms bring major relief to households and middle-class
consumers.
Everyday essentials such as hair oil, soaps, shampoos, toothpaste,
toothbrushes, bicycles, kitchenware, and tableware have all been shifted to the
5% tax slab from 12–18% earlier.
Popular food items like namkeens, sauces, pasta, instant noodles, chocolates,
coffee, and butter have also seen their tax rate reduced to 5%.
Significantly, cement, a key infrastructure input, has been reduced from 28% to
18%, lowering construction costs.
Zero-Tax Relief for Essentials and Healthcare
Products such as ultra-high temperature milk, paneer, rotis, chapatis, and
parathas will now attract 0% GST, making everyday food items cheaper.
In healthcare, 33 lifesaving medicines have been exempted from GST, while
spectacles for vision correction will now attract just 5% instead of 28%.
Insurance services also see a major shift, with life and health insurance policies
moved to 0% from 18%, providing direct benefits to households.

White Goods and Automobiles

High-ticket consumer items such as air-conditioners, TVs, dishwashers, small
cars, motorcycles (≤350cc), buses, trucks, and ambulances will now attract 18%
GST instead of 28%.
This will ease affordability for consumers and boosting demand in the automotive
sector.

Correcting Inverted Duty Structures

The government has addressed long-pending anomalies in textiles and
fertilisers.
GST on manmade fibre has been reduced from 18% to 5%, and on manmade
yarn from 12% to 5%, correcting distortions in the textile value chain.
Similarly, fertiliser inputs like sulphuric acid, nitric acid, and ammonia have
been cut from 18% to 5%, lowering costs for agriculture and farmers.

Special 40% Slab for Sin and Luxury Goods

A 40% GST rate will apply only to super-luxury and sin goods such as pan
masala, cigarettes, gutka, zarda, unmanufactured tobacco, caffeinated
beverages, private-use helicopters, airplanes, yachts, and large cars/motorcycles
(>350cc).
For now, pan masala and tobacco products will remain taxed at 28% plus cess,
but they will move into the 40% slab once the Centre repays compensation loans
borrowed for states.

What is the Goods and Services Tax (GST)?

▪ About: Introduced by the 101st Constitutional Amendment Act, 2017,

is a comprehensive indirect tax levied on the supply of goods and
services in India.
o It is a value-added tax (VAT) that replaced multiple indirect taxes
previously levied by the Centre and States.
o The Kelkar Task Force, constituted by the Ministry of Finance,
played a pivotal role in shaping India’s Goods and Services Tax
(GST) framework.
▪ Key Features:
o Dual GST Structure: Includes Central GST (CGST) and State GST
(SGST); Integrated GST (IGST) is applicable for inter-state
transactions.
o GST Council: It is the primary body for GST policymaking and rate
decisions.
o It is established under Article 279A of the Constitution, is a joint
forum of the Centre and States.
o It is chaired by the Union Finance Minister, the Union Minister of
State in charge of Revenue or Finance as a Member, and the Minister
in charge of Finance, Taxation, or any other Minister nominated by
each State Government as Members.
o Goods and Services Tax Network (GSTN): Helps taxpayers in India
to prepare, file returns, make payments of indirect tax liabilities and
do other compliances.
o Threshold Exemption: Small businesses with turnover below
a certain limit are exempt from GST. This makes compliance
easier and protects microenterprises from excessive paperwork.