GST Council Cuts Rates, Simplifies Tax Structure

The 56th GST Council Meeting has approved a comprehensive rationalization of GST rates, moving from a 4-tiered system to a simpler structure with a Standard Rate of 18%, a Merit Rate of 5%, and a special de-merit rate of 40% for select goods. GST on life and health insurance premiums has been exempted, while rates on essential items such as hair oil, soaps, toothpaste, bicycles, and kitchenware have been reduced to 5%. GST on UHT milk, paneer, Indian breads, and several food items has been lowered to nil or 5%. Small cars and two-wheelers now attract 18% GST, mid-sized and large cars, including SUVs, face 40%, and electric vehicles remain at 5%. Other reductions cover medical equipment, agricultural machinery, handicrafts, cement, and hotel accommodation below ₹7,500 per day. The changes aim to ease the tax burden on consumers and simplify compliance for businesses, effective from 22nd September 2025.

24 bullet points on the 56th GST Council Meeting:

1. Exemption of GST on all individual life insurance policies, whether term life, ULIP, or endowment policies, and reinsurance thereof, to make insurance affordable for the common man and increase insurance coverage in the country.
2. Exemption of GST on all individual health insurance policies (including family floater policies and policies for senior citizens) and reinsurance thereof, to make insurance affordable for the common man and increase insurance coverage in the country.
3. 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, and other household articles, etc.
4. Reduction of GST from 5% to NIL on Ultra-High Temperature (UHT) milk, prepackaged and labeled chena or paneer; all the Indian breads (chapati/roti, paratha, parotta, etc.).
5. 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.
6. Reduction of GST from 28% to 18% on air-conditioning machines, TVs up to 32 inches (all TVs now at 18%), dishwashing machines, small cars, and motorcycles equal to or less than 350 cc.
7. 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.
8. Reduction of GST from 12% to 5% on labor-intensive goods such as handicrafts, marble and travertine blocks, granite blocks, and intermediate leather goods.
9. Reduction of GST from 28% to 18% on cement.
10. 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 the treatment of cancer, rare diseases, and other severe chronic diseases.
11. Reduction of GST on all other drugs and medicines from 12% to 5%.
12. 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.
13. 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.
14. Reduction of GST from 28% to 18% on small cars and motorcycles equal to or below 350 cc.
15. Reduction of GST from 28% to 18% on buses, trucks, ambulances, etc.
16. Uniform rate of 18% on all auto parts, irrespective of their HS code; three-wheelers from 28% to 18%.
17. Correction of the long-pending inverted duty structure for the manmade textile sector by reducing the GST rate on manmade fiber from 18% to 5% and manmade yarn from 12% to 5%.
18. Correction of the inverted duty structure in the fertilizer sector by reducing GST from 18% to 5% on sulfuric acid, nitric acid, and ammonia.
19. Reduction of GST from 12% to 5% on renewable energy devices and parts for their manufacture.
20. Reduction of GST from 12% to 5% on “Hotel Accommodation” services having a value less than or equal to Rs. 7,500 per unit per day or equivalent.
21. Reduction of GST from 18% to 5% on beauty and physical well-being services used by the common man, including services of gyms, salons, barbers, yoga centers, etc.
22. Comparison of Existing GST rates vs. Proposed GST rates on cars/vehicles

A. Existing rates

B. Proposed GST rates per GST Council Meeting as on 03.09.2025 to be effective from 22.09.2025

The GST rate on all small cars has been reduced from 28% to 18%. For the purposes of GST, small cars mean Petrol, LPG, or CNG cars with an engine capacity up to 1200 cc and length up to 4000 mm and Diesel cars with an engine capacity up to 1500 cc and length up to 4000 mm.

The GST rate on all mid-size and large cars, i.e., vehicles exceeding 1500 cc or length exceeding 4000 mm, is 40%. Further, motor vehicles in the category of Utility Vehicles, by whatever name called, including Sports Utility Vehicles (SUV), Multi Utility Vehicles (MUV), Multi-purpose Vehicles (MPV) or Cross-Over Utility Vehicles (XUV), with an engine capacity exceeding 1500 cc, length exceeding 4000 mm, and ground clearance of 170 mm and above, will also attract a GST rate of 40% without any cess.

23. Sector-wise impact on Stocks

GST Council – 56th Meeting Highlights & Market Impact (Sep 2025)

• Autos (2W & Small Cars)
  • GST reduced 28% ➝ 18% → Strong demand revival
  • Key Beneficiaries: Hero MotoCorp, Maruti, M&M, Ashok Leyland, TVS
• FMCG & Essentials
  • GST cut 18%/12% ➝ 5% → Organized players to gain, consumption uptick
  • Key Beneficiaries: HUL, Britannia, Nestle, Dabur, ITC, Varun Beverages
• Dairy Products
  • GST on ghee, butter, paneer reduced to 5%/Nil → Favorable for branded players
  • Key Beneficiaries: Parag Milk Foods, Heritage, Hatsun Agro
• Insurance (Life & Health)
  • GST exemption on premiums (18% ➝ 0%) → Lower cost, higher penetration
  • Key Beneficiaries: HDFC Life, SBI Life, ICICI Prudential
• Consumer Durables (ACs, TVs, Washing Machines)
  • GST reduced 28% ➝ 18% → Festive demand booster
  • Key Beneficiaries: Voltas, Havells, Dixon, Symphony
• Hotels & Tourism
  • GST on room tariffs lowered → Higher occupancy & affordability
  • Key Beneficiaries: Indian Hotels, EIH, Lemon Tree
• Cement & Construction
  • Input GST rationalized → Cost efficiencies, margin gains
  • Key Beneficiaries: UltraTech, Shree Cement, Dalmia Bharat, ACC

24. It is effective from 22nd September 2025 – official circulars and notifications to follow in due course of time.