Goods and Services Tax (GST) has been at the heart of the nation’s economic reform since July 2017, reshaping the way taxes are levied on goods and services. The GST Council, through its periodic meetings, reviews and recalibrates rates, procedures, and governance to ensure the system adapts to the evolving needs of trade, industry, and consumers. The 56th GST Council Meeting on September 3, 2025, marks a pivotal chapter in this journey with deep and wide-ranging changes aiming to boost inclusion, simplify compliance, and drive affordability.
The Rate Rationalisation and reforms was done based on the 3 pillars
Pillar 1: Structural reforms with respect to Inverted duty structure correction, resolving classification issue, stability and predictability.
Pillar 2: Rate rationalisation for reduction of taxes on common man items and aspirational goods, reduction of rate slabs and compensation cess
Pillar 3: Ease of living with respect to registration, returns filing and refunds
Highlights of the Recommendations of 56th Meeting of GST Council
Major Changes Announced
Goods Sector
Sharp Rate Reductions: Over 100 goods have seen GST rate reductions, especially on essential and everyday items. Key examples:
– Food: UHT milk and paneer (nil from 5%), condensed milk (5% from 12%), cheese and butter (5% from 12%), pizza bread and Indian breads (nil from 5–18%), a wide array of dried fruits, nuts, and legumes (5% from 12–18%), and several snacks, juices, and non-alcoholic beverages have seen similar cuts
– Health: Life-saving medicines for rare diseases (nil from 5–12%), general drugs and surgical products (now at 5%), medical grade oxygen, diagnostic kits, and devices like glucometers and occlusion devices (5% from 12%).
– Consumer goods: Toothpaste, shampoos, soaps, powder, candles, feeding bottles, sewing needles, tableware, utensils in copper, aluminum, iron, and other common household products now attract just 5% instead of 12–18%
– Renewable energy: Solar water heaters, biogas plants, windmills, and parts for green energy manufacturing now at 5% (from 12%).
– Textiles and agriculture: Yarn, wadding, nonwovens, rubber thread, machinery, tractor parts, and irrigation systems have moved into the 5% bracket, benefiting manufacturers and farmers.
Targeted Rate Increases:
Sin goods—pan masala, tobacco products, aerated drinks, caffeinated beverages, and luxury vehicles—face a hike (up to 40% from 28%). This aligns with public health objectives and revenue requirements, making them less attractive for mass consumption.
– Certain services related to betting, casinos, and luxury activities have seen increases to 40%
– Business Class Air Travel is also been increased to 18% from the existing 12%
Changes in Services
– Hotel Accommodation: GST drops to 5% form 12% for rooms below ₹7,500 per unit per day, making travel and hospitality more accessible.
– Job Work and Professional Services: GST reduced to 5% for most job work (umbrella, textiles, pharmaceuticals, leather, bricks), encouraging outsourcing and employment generation in MSMEs. At the same time regular job-work has been increased to 18% from 12%.
– Public Health and Insurance: Individual life and health insurance is now exempted, reducing costs and supporting coverage expansion for the population. However, the due to non-availability of the input tax credit, the premiums are expected to increase, which could be only around 3-4%.
Timeline for Implementation
– 22 September 2025: All new rates (goods except sin goods, and all services) come into effect.
– Deferred for Sin Goods: Higher rates for pan masala, cigarettes, tobacco, etc., will be introduced only after existing compensation cess obligations are fulfilled. The Finance Minister will decide the transition date for these products, giving businesses time to adjust.
– November 1, 2025: Rollout of risk-based refunds, simplified registration scheme for small businesses and e-commerce sellers, aiding cash flows and compliance.
– GST Appellate Tribunal: Accepting appeals from September 2025, with hearings starting December and backlog deadline for June 2026. The Principal Bench will double as the National Appellate Authority for Advance Rulings.
Measures for Facilitation of Trade
– Automated Risk-Based Refunds: Eligible exporters and those facing inverted duty structures will receive 90% provisional refunds within days, drastically improving working capital for businesses.
– Simplified GST Registration Schemes: Low-risk businesses with monthly output below ₹2.5 lakh can receive registration within three days. Small e-commerce sellers can benefit from pan-India registration, bypassing the complex “principal place of business” requirement.
Amendment of Place-of-Supply Rules:
– Exporters of intermediary services (commission Agent) can now claim benefits of export when the client is located abroad, as rules default to recipient location as the place of supply, making India more competitive globally. Presently the place of supply for this was location of the provider and was subjected to GST even though the client was in abroad and there was receipt of the foreign inward remittance.
Post-Sale Discount Reforms:
– Clarifies rules for discounts and credit notes, the discount now can be extended even if the same was not provided in the contact.
Detailed Impacts
For Businesses
– Cost Savings: Lower GST on key inputs and products (food, medicines, textiles, energy) means more competitive pricing, improved margins, better cash flows, and wider market potential for domestic and export-focused businesses.
– Compliance Ease: Automated refunds cut wait times, simplified registration widens inclusion, and clearer valuation/discount rules reduce ambiguity—driving efficiency and transparency.
– Sectoral Uplift: Agriculture, textiles, food processing, health, and green energy stand to gain in investment, employment, and output due to reduced tax burdens and easier market entry.
For End Consumers
– Cheaper Essentials: The maximum impact is on processed food, medicines, everyday consumer goods, and items related to health and personal care. The common man, middle class, and vulnerable sections see prices drop and choices expand.
– Health and Welfare: Exemption for the health and life insurance and Higher taxes on “sin goods” discourage unhealthy consumption.
FAQ: Rate Changes and Implications
– Why are some rates increasing sharply?
For goods like pan masala, tobacco, aerated beverages, and luxury vehicles, higher taxes of 40% has been proposed, however these goods suffered compensation cess up to 15% in addition to 28% of GST and hence the increase is not much if the compensation cess is being done away with.
– How will the GSTAT help businesses?
The newly operational tribunal will quicken dispute resolution, bring consistency in GST administration, and boost taxpayer confidence. For the want of Tribunals, the tax- payer had to approach the HC, which can be avoided now in many cases.
– How fast and easy is the new refund process?
Eligible exporters and manufacturers can expect up to 90% provisional refunds (for IDS and zero-rated supply) within 7 days, freeing up cash flows for reinvestment. As per the present provision the time limited in 30days. However this can be circumvented by issuance of the Defeciency Memo, which needs need to fixed.
– What are the biggest positives for MSMEs and traders?
Simplified registration and easier compliance will allow smaller players to scale, participate in e-commerce, and compete across states without heavy paperwork or risks.
– Can consumers expect prices to fall across all sectors?
While most essentials will see lower prices, some items (luxuries, sin goods) could get pricier. Net effect: widespread affordability and welfare gain.
Key Action Points for Business Review
1. Update ERP and Accounting Systems
– Revise GST rates in invoicing, accounting, billing, and ERP systems to reflect the latest notified rates for all products and services, effective from 22 September 2025 (except for ‘sin goods’ with deferred implementation).
– Ensure mapping for new HSN codes and sector definitions in product masters and GST returns.
2. Review Pricing and Contracts
– Recalculate pricing of impacted goods and services to pass on benefits where rates are reduced, or manage cost implications where rates are increased (e.g., carbonated drinks, tobacco, luxury vehicles).
– Assess necessity for contract amendments due to GST rate changes, especially for long-term agreements or contracts running into/after the transition date.
3. Communicate with Stakeholders
– Inform customers of price changes due to revised GST rates.
– Update suppliers and vendors, especially on new rate applicability to purchases, purchases-in-transit, and input credits.
– Highlight GST impact in product/service quotations.
4. Review Input Tax Credit (ITC) Impact
– Assess changes in ITC accumulation, availing, and reversal due to altered input rates, inverted duty structure (IDS) refunds, and post-sale discounts.
– Adjust budgeting for refunds, particularly with new risk-based refunds (90% provisional for IDS and zero-rated supply).
5. Conduct Product/Service Classification Audit
– Re-examine HSN and service codes for products/services to verify GST rate fit, as rate changes often depend on precise classification.
– Pay attention to new sectoral definitions and standout exclusions.
6. Update Legal and Contractual Templates
– Amend contracts, purchase orders, and sales agreements to reflect GST changes to pricing and payment terms.
– Include clauses for rate change handling in ongoing contracts to avoid payment disputes.
7. **Train Teams and Strengthen Compliance
– Conduct training for finance, accounting, sales, and procurement teams on all GST changes, including new rates, refund procedures, registration schemes, and amendments to valuation/discount rules.
– Monitor compliance dates for phased implementation and administrative refund reform.
8. Plan for GST Appellate Tribunal Activation
– Prepare or expedite backlog appeals for submission before the new GST Appellate Tribunal, noting the deadline (30 June 2026).
– Align ongoing disputes and advance ruling applications to new procedures.
9. Communicate Refund and Credit Procedures
– Inform finance teams about risk-based provisional refund process—automated sanction of 90% refund for IDS and exports—starting 1 November 2025, and ensure updated documentation for claim eligibility.
10.Monitor Regulatory Notifications
– Track upcoming CBIC notifications/circulars for further clarity, especially on the implementation date for sin goods’ revised rates, and sector-specific procedures.
Conclusion
Timely and proactive review is critical to avoid compliance issues, unlock refunds, and realize business savings from the updates. Coordination between tax, finance, sales, IT, and legal teams is essential for a smooth transition and to leverage the benefits introduced by the 56th GST Council Meeting.
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