The 56th meeting of the GST Council, held in New Delhi under the chairpersonship of Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman, marks a significant milestone in India’s tax reform journey. The meeting introduced what Prime Minister Shri Narendra Modi announced as “next-generation GST reforms” from the Red Fort on August 15, 2025.

These reforms represent a strategic, principled, and citizen-centric evolution of India’s landmark tax framework, designed to enhance the quality of life for every citizen while ensuring ease of doing business for all, including small traders and businessmen.

Major Tax Structure Simplification

Transition to Simple Tax Structure

The most significant reform approved by the GST Council is the rationalization of the current 4-tiered tax rate structure into a simplified ‘Simple Tax’ system featuring:

• Standard Rate: 18% – Broadly covers most goods and services including non-essential consumer products, automobiles, and industrial items.
• Merit Rate: 5% – Broadly covers essential goods, daily necessities and items promoting social welfare.
• De-merit Rate: 40% (select items only) -Select sin and luxury items, including tobacco products, high-sugar beverages, luxury vehicles, yachts, and pan masala.

This streamlined structure aims to reduce compliance burden and create a more citizen-friendly tax environment.

Sector-wise Tax Rate Changes

Healthcare and Insurance Sector

The Council has prioritized making healthcare and insurance more affordable:

• Complete GST exemption on all individual life insurance policies (term life, ULIP, endowment policies) and their reinsurance
• Complete GST exemption on all individual health insurance policies, including family floater and senior citizen policies, along with their reinsurance
• Rate reduction from 12% to NIL on 33 lifesaving drugs and medicines
• Rate reduction from 5% to NIL on 3 lifesaving drugs for cancer, rare diseases, and severe chronic conditions
• Rate reduction from 12% to 5% on all other drugs and medicines
• Rate reduction from 18% to 5% on various medical apparatus and devices
• Rate reduction from 12% to 5% on medical equipment including gauze, bandages, diagnostic kits, and glucometers

Food and Essential Items

Significant relief has been provided on common-use items:

• Rate reduction from 18% or 12% to 5% on everyday items including hair oil, toilet soap bars, shampoos, toothbrushes, toothpaste, bicycles, tableware, and kitchenware
• Rate reduction from 5% to NIL on UHT milk and pre-packaged chena/paneer
• NIL rates on all Indian breads (chapati, roti, paratha, parotta)
• Rate reduction from 12% or 18% to 5% on food items such as packaged namkeens, bhujia, sauces, pasta, instant noodles, chocolates, coffee, preserved meat, cornflakes, butter, and ghee

Automotive Sector

Comprehensive reforms in the automotive industry:

• Rate reduction from 28% to 18% on air-conditioning machines, TVs greater than 32 inches (less than 32 inches were already at 18%), dishwashing machines, small cars (definition same as earlier), and motorcycles up to 350cc engine capacity.
• Uniform 18% rate on all auto parts regardless of HSN code
• Rate reduction from 28% to 18% on three-wheelers, buses, trucks and ambulances

Agriculture and Allied Sectors

Support for farmers and agricultural activities:

• Rate reduction from 12% to 5% on agricultural goods including tractors, agricultural machinery, harvesting equipment, threshing machinery, and composting machines
• Rate reduction from 18% to 5% on rear tractor tyres and various tractor parts
• Rate reduction from 18% to 5% on fertilizer sector inputs including sulphuric acid, nitric acid, and ammonia

Textile and Manufacturing

Corrections to inverted duty structures:

• Rate reduction from 18% to 5% on manmade fiber and from 12% to 5% on manmade yarn
• Rate reduction from 12% to 5% on labor-intensive goods including handicrafts, marble and granite blocks, and intermediate leather goods
• GST 5% exemption threshold for footwear and apparel raised from ₹1,000 to ₹2,500 per piece, keeping items affordable and simplifying the tax structure

Construction and Infrastructure

• Rate reduction from 28% to 18% on cement
• Rate reduction from 12% to 5% on renewable energy devices and manufacturing parts

Services Sector

• Rate reduction from 12% to 5% on hotel accommodation services valued up to Rs. 7,500 per unit per day
• Rate reduction from 18% to 5% on beauty and wellness services including gyms, salons, barbers, and yoga centers

Implementation Timeline

The Council has adopted a phased implementation approach:

• September 22, 2025: Implementation of rate changes on services and most goods
• Tobacco products exception: Pan masala, gutkha, cigarettes, chewing tobacco, unmanufactured tobacco, and bidi will continue at existing rates until loan and interest payment obligations under the compensation cess account are discharged
• The Union Finance Minister will decide the actual transition date for tobacco products based on compensation cess obligations

Administrative and Process Reforms

GST Appellate Tribunal (GSTAT)

A major institutional strengthening measure for clearer GST rules, faster dispute resolution, and greater certainty – making business easier than ever!

• GSTAT will become operational for accepting appeals before end of September 2025
• Hearings will commence before end of December 2025
• Limitation date of June 30, 2026 set for filing backlog appeals
• The Principal Bench will serve as the National Appellate Authority for Advance Ruling

Refund Process Improvements

• Implementation of 90% provisional refunds for inverted duty structure cases based on data analysis and risk evaluation
• Enhanced system-based processing similar to zero-rated supplies

Other Trade Facilitation Measures

The Council approved various measures to facilitate trade, including:

• Simplified GST Registration for small businesses
• Process reforms for GST law and procedures
• Clarifications on restaurant service taxation
• Alignment of valuation rules with lottery ticket rate changes
• Administrative improvements for better compliance

Economic Impact and Objectives

The reforms demonstrate a multi-sectoral and multi-thematic focus targeting:

• Common man relief through reduced rates on essential items
• Labour-intensive industry support through favorable tax treatment
• Farmer and agriculture sector assistance via reduced input costs
• Healthcare accessibility through insurance and medicine exemptions
• Economic growth drivers support through infrastructure and manufacturing incentives

Read the official press release by the government here.

Conclusion

The 56th GST Council meeting represents a landmark moment in India’s tax reform journey, delivering on the promise of next-generation GST reforms. By simplifying the tax structure from four tiers to essentially two main rates, providing significant relief on essential items and services, and strengthening institutional frameworks, these reforms are designed to enhance ease of doing business while making essential goods and services more affordable for citizens.

The phased implementation approach, starting September 22, 2025, ensures smooth transition while maintaining fiscal discipline through the compensation cess mechanism. With the operationalization of GSTAT and various process improvements, the reforms promise to create a more efficient, transparent, and citizen-friendly tax administration system.

These comprehensive changes reflect the government’s commitment to creating a tax system that supports economic growth, promotes compliance and prioritizes the welfare of common citizens while maintaining the fiscal health of the nation.

Watch the full 56th GST Council Meeting here:

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56th GST Council Meeting: Key Expectations and Agenda

As the 56th GST Council meeting is set to convene in the first week of September 2025, anticipation is building among businesses and policymakers alike. The upcoming session is expected to take up critical tax reforms, ranging from sector-specific rate revisions to clarifications for fast-evolving areas such as e-commerce and digital services.

A major point of attention will be the proposed restructuring of GST rate slabs, aimed at simplifying the current multi-tier framework. With compliance challenges and policy refinements also on the agenda, this meeting could mark an important step in shaping a more business and consumer friendly GST regime.

56th GST Council Meeting: Anticipated Agenda and Sectoral Impacts

Rationalization of GST Rates

A significant expectation from the upcoming meeting is the rationalization of GST rates. Finance Minister Nirmala Sitharaman has indicated a move towards reducing and simplifying GST slabs, aiming to alleviate compliance burdens and stimulate consumption. According to reports, the GoM has reportedly reached a “near consensus” on moving items currently under the 12% GST slab to either the 5% or 18% slabs. The final decision may be taken by the GST Council.

Compensation Cess Review

The Council may deliberate on the future of the compensation cess, which has been a significant source of revenue for states. Decisions could involve extending, modifying, or phasing out the cess, impacting state finances and overall tax collections.

Addressing Inverted Duty Structures

Industries such as textiles, footwear, and fertilizers have long grappled with inverted duty structures, where input taxes exceed those on finished products, leading to accumulated input tax credits and cash flow challenges. The GST Council is expected to deliberate on rectifying these anomalies to enhance sectoral efficiency.

Unified Taxation for Commercial Drones

The drone industry anticipates a uniform 5% GST rate for all commercial drones, addressing current classification ambiguities that subject drones to varying tax rates based on features like integrated cameras. This move aims to streamline taxation and foster growth in sectors leveraging drone technology.

Currently, different types of drones are taxed at different GST rates depending on how they are classified under HSN codes. Drones used for business purposes are considered aircraft (HSN 8806) and taxed at 5%. Drones with built-in cameras fall under HSN 8525, like digital cameras, and attract 18% GST. Personal-use drones, also under HSN 8806, are taxed at a higher rate of 28%.

Looking Ahead

The 56th GST Council meeting stands as a critical juncture for India’s taxation framework, with the potential to implement reforms that simplify tax structures, resolve sector-specific challenges, and promote economic growth. Stakeholders await the outcomes with optimism, hoping for decisions that will enhance compliance, reduce litigation, and foster a more conducive business environment.

To read our coverage on the previous Council Meet decisions, you may refer here:

• 55th GST Council Meeting
• 54th GST Council Meeting
• 53rd GST Council Meeting
• 52nd GST Council Meeting
• 51st GST Council Meeting
• 50th GST Council Meeting

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