Transformative Reforms to Ease Financial Burden, ETCFO
The Goods and Services Tax (GST) Council on Tuesday approved sweeping reforms aimed at rationalising rates, correcting inverted duty structures, and simplifying compliance for businesses and individuals. The reforms, announced by Finance Minister Nirmala Sitharaman after a day-long council meeting, will take effect from September 22, 2025, the first day of Navratri.
Calling the decisions “next-generation reforms” inspired by Prime Minister Narendra Modi’s call from the Red Fort on August 15, Sitharaman said the measures were designed to bring relief to the common man while ensuring stability and predictability in the GST regime.
Two-Slab GST structure
- The FM said that the Council decided to reduce the number of GST slabs, moving towards a simplified two-rate structure of 18% and 5% for most goods and services.
- A special rate of 40% will be reserved exclusively for sin and luxury goods, including pan masala, cigarettes, gutkha, aerated sugary beverages, and luxury vehicles.
Daily Use Items Get Relief
- Several mass-consumption items such as hair oil, toilet soap, shampoos, toothpaste, toothbrushes, bicycles, tableware, kitchenware, and other household articles have been moved to the 5% slab from 12% or 18%.
- UHT milk, paneer, and chhena will now attract nil GST, down from 5%.
Food Products
- Processed food items including namkeen, bhujiya, sauces, pasta, instant noodles, chocolates, coffee, preserved meat, cornflakes, butter, and ghee have all been reduced to 5% from 12–18%.
Health Sector
- Life-saving medicines for cancer, rare diseases, and chronic conditions have been exempted from GST.
- Several other drugs, diagnostic kits, blood glucose monitoring systems, spectacles, and corrective goggles have been reduced to 5%.
- Insurance services: All individual life and health insurance policies, including family floater and senior citizen policies, are now GST-exempt.
Automobiles & Mobility
- GST on small cars and motorcycles (up to 350cc) reduced to 18% from 28%.
- Buses, trucks, ambulances, and three-wheelers also moved to 18%.
- All auto parts will now carry a uniform 18% rate, regardless of HS code.
- Larger cars, luxury motorcycles, and aircraft for personal use remain in the 40% special slab.
Agriculture & Labour-Intensive Sectors
- GST on tractors, agricultural machinery, and harvesting equipment reduced from 12% to 5%.
- Handicrafts, marble and granite blocks, intermediate leather products, and biopesticides also reduced to 5%.
Cement & Construction
- Cement rates reduced from 28% to 18%, a long-standing industry demand.
Renewable Energy & Fertilisers
- GST cut from 12–18% to 5% on renewable energy devices, solar panels, solar cookers, biogas plants, and windmills.
- Fertiliser inputs like sulphuric acid and ammonia moved down to 5% to support agriculture.
Inverted Duty Structure Corrections
- Long-pending issues in textiles addressed: GST on man-made fibre reduced to 5% (from 18%) and man-made yarn to 5% (from 12%).
- Fertiliser and textile sectors to see relief from blocked capital and anomalies.
Services Sector Reforms
- GST on hotel accommodation up to ₹7,500 per night reduced to 5%.
- Beauty and wellness services, including salons, gyms, and yoga centres, reduced from 18% to 5%.
- Job-work services in pharmaceuticals, textiles, and leather industries now taxed at 5% instead of 18%.
- Clarifications were also issued on local delivery services through e-commerce platforms to simplify compliance.
Implementation TimelineThe FM announced that all changes, except for tobacco and related products, will be effective from September 22, 2025. Tobacco products including cigarettes, gutkha, zarda, and chewing tobacco will continue under the current 28% rate plus compensation cess until outstanding GST compensation loans are fully repaid. Sitharaman said that the Finance Minister has been authorised to decide the exact transition date for these items.
Full list of GST rate cuts
