Major changes proposed

• Rationalisation of the current 4-tiered tax rate structure into 2 rate structure with a Standard Rate of 18% and a Merit Rate of 5%. Further, a special de-merit rate of 40% for a select few goods and services
• Exemption of GST on all individual life insurance policies whether term life, ULIP or endowment policies and reinsurance thereof
• Exemption of GST on all individual health insurance policies (including family floater policies and policies for senior citizens) and reinsurance thereof
• Reduction of GST from 18% or 12% to 5% on a host of common man items such as, hair oil, toilet soap bars, shampoos, toothbrushes, toothpaste, Bicycles, Tableware, kitchenware, other household articles, etc.
• Reduction of GST from 5% to NIL on Ultra-High Temperature (UHT) milk, Prepackaged and labelled chena or paneer
• All the Indian Breads will have NIL rates (Chapati or roti, paratha, parotta) etc.
• Reduction of GST from 12% or 18% to 5% on almost all of the food items such as packaged namkeens, Bhujia, Sauces, Pasta, Instant Noodles, Chocolates, Coffee, Preserved Meat, Cornflakes, Butter, Ghee, etc.
• Reduction of GST from 28% to 18% on Air-conditioning machines, TVs-32 inch (all TVs now at 18%), Dishwashing machines, Small cars, Motorcycles equal to or less than 350 CC
• Reduction of GST from 12% to 5% on agricultural goods, such as tractors, agricultural, horticultural or forestry machinery for soil preparation or cultivation, harvesting or threshing machinery, including straw or fodder balers, grass or hay mowers, composting machines etc.
• Reduction of GST from 12% to 5% on labour intensive goods such as Handicrafts, Marble and travertine blocks, granite blocks, and Intermediate leather goods
• Reduction of GST from 28% to 18% on Cement
• Reduction of GST from 12% to NIL on 33 lifesaving drugs and medicines and from 5% to NIL on 3 lifesaving drugs & medicines used for treatment of cancer, rare diseases and other severe chronic diseases
• Reduction of GST on all other drugs and medicines from 12% to 5%
• Reduction of GST from 18% to 5% on various medical apparatus and devices used for medical, surgical, dental or veterinary usage or for physical or chemical analysis
• Reduction of GST from 12% to 5% on various medical equipment and supplies devices such as wadding gauze, bandages, diagnostic kits and reagents, blood glucose monitoring system (Glucometer) medical devices, etc.
• Reduction of GST from 28% to 18% on Small Cars and Motorcycles equal to or below 350cc
• Reduction of GST from 28% to 18% on buses, trucks, ambulances etc.
• Uniform rate of 18% on all auto parts irrespective of their HS code; Three-Wheelers from 28% to 18%
• Correction of long-pending inverted duty structure for the manmade textile sector by reducing GST rate on manmade fibre from 18% to 5% and manmade yarn from 12% to 5%
• Correction of inverted duty structure in fertilizer sector by reducing GST from 18% to 5% on Sulphuric acid, Nitric acid and Ammonia
• Reduction of GST from 12% to 5% on renewable energy devices and parts for their manufacture
• Reduction of GST from 12% to 5% on “Hotel Accommodation” services having value less than or equal to Rs. 7,500 per unit per day or equivalent
• Reduction of GST from 18% to 5% on beauty and physical well-being services used by common man including services of gyms, salons, barbers, yoga centres, etc
• GST Council recommends operationalisation of Goods and Services Tax Appellate Tribunal (GSTAT) for accepting appeals before end of September and to commence hearing before end of December 2025
• GST Council recommends GST rates on services will be implemented with effect from 22nd September 2025

Other changes relating to goods

• It has been decided that the GST will be levied on Retail Sale Price (RSP) instead of transaction value on Pan Masala, Gutkha, Cigarettes, Unmanufactured tobacco, Chewing tobacco like Zarda.
• The HSN wise rate changes are at Annexure - I and sector wise rate changes are at Annexure - II of the PIB (annexed)

Other changes relating to services

• The HSN wise rate changes are at Annexure - III and sector wise rate changes are at Annexure – IV of the PIB (annexed)
• With respect to taxability of restaurant services, an explanation to the definition of ‘specified premises’ to be inserted to clarify that a stand-alone restaurant cannot declare itself as a ‘specified premises’ and consequently cannot avail the option of paying GST at the rate of 18% with ITC
• The Council has recommended to align the valuation rules with the change in the tax rate applicable to lottery tickets
• Certain amendments in the GST Valuation rules are also being carried out
• The proposed rate for supply of transport of goods by GTA (5% without ITC under RCM/FCM) and 18% with ITC (previously 12% with ITC)
• Supply of transport of goods in containers by rail by any person other than Indian Railways (5% without ITC and 18% with ITC)
• Supply of Renting of any motor vehicle (with operator) designed to carry passengers where the cost of fuel is included in consideration increased from 12% with ITC to 18% with ITC

Recommendation relating to date of implementation

• The Council decided that the changes in GST rates may be implemented in a phased manner as follows:

1. The changes in GST rates on services will be implemented with effect from 22 September 2025
2. The changes in GST rates of all goods except pan masala, gutkha, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and bidi, will be implemented with effect from 22 September 2025
3. Pan Masala, gutkha, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and bidi will continue at the existing rates of GST and compensation cess where applicable, till loan and interest payment obligations under the compensation cess account are completely discharged

Measures for trade facilitation and streamlining compliances

• Sanction of risk-based provisional refund to facilitate refund claims on account of zero-rated supply of goods or services or both (i.e. export of goods or services or both or supply to a Special Economic Zone developer/unit for authorised operations.): The Council recommended amendment in rule 91(2) of CGST Rules, 2017 to provide for sanction of 90% of refund claimed as provisional refund by the proper officer on the basis of identification and evaluation of risk by the system. However, in exceptional cases, the proper officer may for reasons to be recorded in writing, instead of granting refund on provisional basis proceed with the detailed scrutiny of the refund claim
• The Council recommended issuance of a notification to notify certain category of registered persons who may not be granted refund on provisional basis. This provision shall be operationalised from 1 November, 2025
• Proposal for Risk-Based Provisional Sanction of refunds arising out of inverted duty structure (IDS): The Council recommended amending section 54(6) of the CGST Act, 2017, to provide for sanction of 90% of refund claimed on provisional basis, in cases arising out of inverted duty structure, on similar lines as is presently available for refund in respect of zero-rated supply
• It has been decided by the Central Government that, pending requisite amendments in CGST Act, 2017, instructions shall be issued by the Central Board of Indirect Taxes and Customs (CBIC) to direct Central Tax field formations for grant of provisional refund equivalent to 90% of amount claimed as refund, arising out of Inverted Duty Structure on the basis of identification and evaluation of risk by the system, as in the case of provisional refunds on account of zero-rated supplies. This shall be operationalized from 1 November, 2025
• Amendment in CGST Act to provide for GST Refunds in respect of low value export consignments: The Council recommended amendment to section 54(14) of the CGST Act, 2017 so as to remove the threshold limit for refunds arising out of exports made with payment of tax. This will particularly help small exporters making exports through courier, postal mode etc.
• Simplified GST Registration Scheme for Small and Low-Risk Businesses: In order to simplify the registration process, the Council has recommended the introduction of an optional simplified GST registration scheme wherein registration shall be granted on an automated basis within three working days from the date of submission of application in case of low risk applicants and applicants who based on their own assessment, determine that their output tax liability on supplies to registered persons will not exceed Rs. 2.5 lakh per month (inclusive of CGST, SGST/UTGST and IGST). The scheme will provide for voluntary opting into and withdrawal from the scheme. This will benefit around 96% of new applicants applying for GST registration. This shall be operationalized from 1 November, 2025
• Introduction of Simplified Registration Scheme for small suppliers supplying through electronic commerce operators: The Council approved in-principle, the concept of a simplified GST registration mechanism for small suppliers making supplies through ecommerce operators (ECOs) across multiple States facing challenges in maintaining principal place of business in each State as currently required under the GST framework. The detailed modalities for operationalizing the said scheme will be placed before GST Council.
• Amendment in place of supply provisions for intermediary services under section 13(8) of the IGST Act: The Council recommended omission of clause (b) of section 13(8) of IGST Act 2017. Accordingly, after the said law amendment, the place of supply for “intermediary services” will be determined as per the default provision under section 13(2) of the IGST Act, 2017 i.e. the location of the recipient of such services. This will help Indian exporters of such services to claim export benefits.
• Amendment of section 15 and section 34 of CGST Act, 2017 in respect of Post Sale Discount: The Council has recommended to omit section 15(3)(b)(i) of CGST Act, 2017 thereby omitting the requirement of establishing the discount in terms of an agreement entered into before or at the time of such supply and specifically linking of the same with relevant invoices
• To amend section 15(3)(b) of CGST Act, 2017 to provide that discount should be granted through a credit note issued under section 34 of the CGST Act and to correspondingly amend section 34 to include a reference to section 15(3)(b), so as to provide for reversal of Input tax credit by the recipient in case where a post-sale discount is given and value of supply is reduced through GST Credit note
• To rescind circular No.212/6/2024-GST dated 26 June 2024 which provided a mechanism ensuring compliance of conditions of Section 15(3)(b)(ii) of the CGST Act, 2017 by the suppliers
• Issuance of circular on certain issues pertaining to Post Sale Discount: In order to remove ambiguity and legal disputes, the Council recommended to provide clarification on certain issues pertaining to Post Sale Discount namely, -

1. non-reversal of Input Tax Credit on account of post-sale discount through financial/commercial credit note
2. treatment of the post-sale discount provided by manufacturer to the dealer as additional consideration, in the transaction between dealer and end-customer;
3. treatment of post-sale discount as consideration lieu of promotional activities etc. performed by the dealer

Operationalization of the GST Appellate Tribunal (GSTAT)

• The Goods and Services Tax Appellate Tribunal (GSTAT) will be made operational for accepting appeals before end of September and will commence hearing before end of December this year
• The Council also recommended the date of 30.06.2026 for limitation of filing of backlog appeals
• The Principal Bench of the GSTAT will also serve as the National Appellate Authority for Advance Ruling

This update has been contributed by Ajay Sanwaria, Counsel (Indirect Tax).

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