In what turned out to be a marathon meeting lasting over 10 hours—but wrapped up in a single day instead of the planned two—the GST Council, in its 56th session, approved the much-anticipated next-generation reforms under the eight-year-old indirect tax regime. Ministers from 31 states and Union Territories came together (some possibly powered by chai and patience) to greenlight a shift toward a simpler tax structure.
According to reports, the sweeping reforms pave the way for a broad two-slab system: a 5 percent merit rate and an 18 percent standard rate, along with a demerit rate of 40 percent reserved strictly for super luxury, sin and demerit goods.
The new rates will come into effect from September 22—conveniently the first day of Navratri. Finance Minister Nirmala Sitharaman, who chaired the meeting, highlighted that all rate changes (except those related to tobacco and tobacco products) will apply from that date.
“Every tax levied on common man’s daily use items has gone through a rigorous look into. And, in most cases, the rates have come down drastically,” Sitharaman reportedly said, adding that labour-intensive industries, farmers, health-related sectors, and the broader economy would benefit from the rate rationalisation.
Among the biggest winners are everyday consumers. A host of commonly used items will now face much lower GST: fruit juices, butter, cheese, condensed milk, soya milk drinks, sausages, and dates are now taxed at 5 percent, down from 12 percent. Even packaged coconut water and pasta got a tax trim. Ultra-high temperature milk, chhena or paneer, khakra, pizza bread, plain chapatis or rotis, and humble erasers have been exempted altogether, probably to the joy of school-going children and their long-suffering stationery budgets.
Items like toothbrushes, toothpastes, shampoos, soap bars, hair oil, bicycles, kitchenware, and tableware will now attract just 5 percent GST instead of the earlier 12 or 18 percent. In a much-needed relief for middle-class households, white goods such as TVs, ACs, and dishwashers have been moved down to 18 percent from 28 percent.
Automobile lovers haven’t been left behind either. Small cars (with engine capacities up to 1200 cc for petrol and 1500 cc for diesel) and bikes under 350 cc will now be taxed at 18 percent. All auto parts too are moved to the same slab. The 40 percent rate will now only apply to bigger cars, alongside other demerit goods. Electric vehicles retain their 5 percent rate—unchanged and possibly unbothered.
Life and health insurance policies, including term plans, endowment, ULIPs, family floaters, and senior citizen plans, are now fully exempt from GST. Beauty and wellness services—think salons, barbers, gyms, and yoga centres—will now be taxed at a modest 5 percent, down from 18 percent. As one might say, even the road to beauty is now tax-efficient.
“The honourable Prime Minister actually set the tone for the next generation reforms on the 15th of August when he spoke from the Red Fort… This reform is not just on rationalising rates. It’s also on structural reforms. It’s also about ease of living so that businesses can do their business of working together with the GST with great ease,” Sitharaman told reporters, reiterating the aim to remove the multiplicity of slabs and bring predictability to tax policy.
The council’s decision to transition to two main slabs—5 percent and 18 percent—along with a special 40 percent rate, also addresses the issue of inverted duty structure, where tax on final products was lower than that on inputs. This was particularly hurting sectors like automotive and food manufacturing.
Textiles and fertiliser sectors saw long-awaited corrections too. GST on manmade fibre has been reduced from 18 percent to 5 percent, while manmade yarn drops from 12 percent to 5 percent. Fertiliser inputs like sulphuric acid, nitric acid, and ammonia will now attract just 5 percent GST instead of 18 percent.
Prime Minister Narendra Modi, in a statement from the PMO, expressed satisfaction that the Council had arrived at a consensus. “The wide ranging reforms will improve the lives of our citizens and ensure ease of doing business for all, especially small traders and businesses,” he said. He also noted that the reforms would benefit “the common man, farmers, MSMEs, middle-class, women and youth.”
States had initially raised concerns over possible revenue losses—some pegging the shortfall anywhere between Rs 80,000 crore to Rs 1.5 lakh crore. There were murmurs about calling for a vote on some issues, but the Council eventually reached consensus without any voting, with officials citing the “larger spirit of implementing the pro-people proposal.”
Revenue Secretary Arvind Shrivastava stated that the proposal was “fiscally sustainable,” with an estimated “net revenue implication” of Rs 48,000 crore based on 2023–24 consumption data. “We would not call it a revenue loss because that doesn’t seem to be the correct terminology,” he clarified.
When asked about global trade tensions and US-imposed tariffs, Sitharaman dismissed any link. “The tariff turmoil is not a matter which influenced the GST reform, because we have been at it now for more than one-and-a-half years,” she reportedly said. Various Groups of Ministers had been working in parallel on rate rationalisation, insurance, and compensation cess matters, she noted.
The Confederation of Indian Industry (CII) hailed the move.
What started with apprehensions of revenue loss ended with smiles, consensus, and GST rate cuts. In true desi style that is.
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