A Deep Dive into the 56th GST Council Press Release and Its Implications (GST RATE CUT DETAILS)
- Nikhil hirani
- Sep 4, 2025
- 7 min read
Updated: Oct 4, 2025
By Nikhil Jain, TAXPATH INDIA FOUNDER
Date of Meeting: 3rd September 2025
Chairperson: Smt. Nirmala Sitharaman, Union Finance & Corporate Affairs Minister
Venue: Sushma Swaraj Bhavan, New Delhi
Table of Contents
Executive Summary
The 56th GST Council meeting has introduced historic changes to the GST structure, implementing a simplified two-rate framework (5% and 18%) with a special 40% rate for select sin goods and luxury items, providing significant relief to the common man, middle class, and various sectors.
Key Highlights on GST rate:
Rate Rationalization: Two-rate structure - 5% (merit rate) and 18% (standard rate) with 40% special rate for select items
Food & Essentials: Major reductions - UHT milk, Indian breads (chapati/roti/paratha/porotta/khakhra), paneer to NIL rate
Health: 33+3 life-saving drugs exempted, all other medicines at 5%, health & life insurance exempted
Textiles: Comprehensive restructuring with value-based classification for appare
Select Luxury & Sin Goods: 40% rate for large cars/SUVs, high-end motorcycles, actionable claims (betting, casinos, IPL admission)
Implementation: Phased rollout starting 22nd September 2025
Implementation Timeline
Phase 1: 22nd September 2025
✅ All Services rate changes
✅ Most Goods rate changes (except tobacco products)
Phase 2: Date to be Notified Later
Tobacco Products Family - Pan Masala, Gutkha, Cigarettes, Unmanufacture Tobacco, Bidi (after compensation cess obligations are fully discharged)
🔄 RSP-based Valuation for tobacco products
Phase 3: Date to be Notified by CBIC
📋 Simplified GST Registration with auto-approval for low-risk businesses
📋 90% Provisional Refunds for zero-rated supplies and inverted duty structure
Major Rate Changes - Goods
🔥 NIL Rate (NEW)
Item | Previous Rate | New Rate | Impact |
UHT Milk | 5% | NIL | Direct relief to consumers |
Paneer (pre-packaged & labelled) | 5% | NIL | Essential protein source |
Indian Breads (by whatever name called) | Various | NIL | Staple food relief |
- Chapati/Roti/Khakhra | 5% | NIL | Basic food items |
- Paratha/Porotta | 18% | NIL | Traditional breads |
Life-saving Drugs (33+3 items) | Various | NIL | Critical healthcare access |
📉 12% → 5% (MAJOR REDUCTIONS)
Category | Examples | Business Impact |
Dairy Products | Condensed milk, Butter, Ghee, Cheese | Lower input costs for food industry |
Nuts & Dried Fruits | Almonds, Cashews, Dates, Figs | Health food affordability |
Processed Foods | Pasta, Sauces, Jams, Ice cream | F&B sector relief |
Textiles Inputs | Yarns, Fabrics, Technical textiles | Manufacturing cost reduction |
Agriculture Equipment | Tractors, irrigation systems, harvesters | Farmer support |
Medical Supplies | Medicines, diagnostic kits, medical devices | Healthcare cost reduction |
Common Items | Toilet soap bars, toothpaste, toothbrush, candles | Daily use affordability |
Education Items | Pencil sharpeners (12%→5%) | Student essentials |
Renewable Energy | Solar panels, wind turbines | Green energy promotion |
📈 40% Special Rate (SIN GOODS & SELECT LUXURY ITEMS)
Item | Previous Rate | New Rate | Policy Objective |
Large Cars/SUVs | 28% + cess | 40% (no cess) | Luxury taxation |
Motorcycles >350cc | 28% + cess | 40% (no cess) | High-end vehicle tax |
Aerated Beverages | 28% | 40% | Health policy alignment |
Caffeinated Beverages | 28% | 40% | Discourage consumption |
Other Non-alcoholic Beverages | 18% | 40% | Premium beverage tax |
Actionable Claims | 28% | 40% | Betting, casinos, lottery |
IPL & Similar Event Admission | 18% | 40% | Entertainment taxation |
Exceptions at 5%: Plant-based milk drinks, soya milk drinks, tender coconut water (not classified as "other non-alcoholic beverages")
🚗 Automotive Sector Restructuring
Vehicle Type | Engine/Size Criteria | Old Rate | New Rate |
Small Cars | Petrol ≤1200cc, Length ≤4000mm | 28% + cess | 18% (no cess) |
Small Diesel | Diesel ≤1500cc, Length ≤4000mm | 28% + cess | 18% (no cess) |
Large Cars/SUVs | Above size limits | 28% + cess | 40% (no cess) |
Motorcycles ≤350cc | Including 350cc | 28% + cess | 18% (no cess) |
Motorcycles >350cc | Exceeding 350cc | 28% + cess | 40% (no cess) |
Three-wheelers | All types | 28% | 18% |
Buses (10+ persons) | Including driver | 28% | 18% |
Trucks/Goods Transport | All types | 28% | 18% |
Ambulances | Duly fitted | 28% | 18% |
Bicycles & Parts | All types | 12% | 5% |
Major Rate Changes - Services
📉 Service Rate Reductions
Service | Previous Rate | New Rate | ITC Status |
Hotel Accommodation (≤₹7,500/day) | 12% with ITC | 5% without ITC | Simplified compliance |
Beauty & Wellness Services | 18% with ITC | 5% without ITC | Affordable self-care |
Job Work - Pharmaceuticals | 12% with ITC | 5% with ITC | Manufacturing support |
Job Work - Hides/Skins/Leather (Ch.41) | 12% with ITC | 5% with ITC | Leather industry support |
📈 Service Rate Increases & Changes
Service | Previous Rate | New Rate | Rationale |
Offshore Oil & Gas E&P Works Contract | 12% with ITC | 18% with ITC | Sector-specific adjustment |
Air Travel (Non-economy) | 5% | 18% | Luxury service differentiation |
Residuary Job Work Services | 12% with ITC | 18% with ITC | Rate rationalization |
Job Work - Alcohol Manufacturing | 12% with ITC | 18% with ITC | Unchanged |
🔄 Service Optionality
Service | Option 1 | Option 2 |
Passenger Transport | 5% without ITC | 18% with full ITC |
Goods Transport (GTA) | 5% without ITC | 18% with full ITC |
Container Train Operator (CTO) | 5% without ITC | 18% with full ITC |
Exception: Air passenger transport - Economy at 5%, Non-economy at 18% (no optionality)
🆓 NEW EXEMPTIONS
Individual Health Insurance (including reinsurance) - All individual policies including family floater and senior citizen plans
Individual Life Insurance (including reinsurance) - All individual policies including term, ULIP, endowment plans
📈 40% Special Rate Services
Specified Actionable Claims: Betting, gambling, casinos, horse racing, lottery, online money gaming
Admission to Events: IPL and similar sporting events (Recognized sporting events ≤₹500 remain exempt, >₹500 at 18%)
Sector-wise Impact Analysis
🏥 Healthcare Sector - MAJOR RELIEF
Life-Saving Drugs (Various → NIL)
33 Critical Drugs: Including Onasemnogene abeparvovec, Daratumumab, cancer treatments, rare disease medications
3 Key Medicines: Agalsidase Beta, Imiglucerase, Eptacog alfa activated
General Medical (12% → 5%)
All medicaments not specifically exempted
Medical devices, diagnostic kits, surgical instruments
Spectacles for vision correction
Insurance Exemptions
All individual health and life insurance policies
Reinsurance services included
🏭 Textile Industry - COMPREHENSIVE REFORM
Input Cost Reduction (12% → 5%)
Man-made filament yarns (HSN 5401-5406)
Synthetic staple fibers (HSN 5503-5507)
Technical textiles (HSN 5901-5911)
Fabrics, carpets, home textiles
Value-based Apparel Classification
≤₹2,500 per piece: Remain at 5%
>₹2,500 per piece: Move to 18%
🚜 Agriculture Sector - CONTINUED SUPPORT
Equipment (12% → 5%)
Tractors (except road tractors >1800cc at 18%)
Agricultural machinery, irrigation equipment
Harvesting, threshing machinery, composting machines
Inputs Rationalization
Various fertilizer chemicals and bio-pesticides
Renewable energy equipment for agriculture
🏗️ Construction Materials
Material | Rate Change | Impact |
Cement | 28% → 18% | Reduced construction costs |
Coal | 5% + cess → 18% (merged) | No net burden increase |
Marble/Granite Blocks | 12% → 5% | Raw material cost reduction |
Trade Facilitation Measures
💰 Refund Reforms (To be Notified by CBIC)
90% Provisional Refunds
Zero-rated supplies: Automated 90% refund process
Inverted Duty Structure: New 90% provisional system for accumulated ITC
Low-value exports: Threshold removal for courier/postal exports
📝 Registration Simplification (To be Notified by CBIC)
Simplified GST Registration
Auto-approval: Within 3 working days
Eligibility: Low-risk applicants with ≤₹2.5 lakh monthly output tax liability
Coverage: Approximately 96% of new applicants
Benefits: Voluntary opt-in/opt-out mechanism
E-commerce Registration
Cross-state suppliers: Simplified mechanism for small suppliers
Principal place requirement: Relaxation approved in principle
🔄 Process Improvements
Post-sale Discount Reform
Agreement requirement: Removed for credit note mechanism
ITC reversal: Clear guidelines for recipients
Legislative changes: To enable streamlined discount pass-through
Restaurant Services Clarification
Stand-alone restaurants cannot self-declare as "specified premises" to opt for 18% with ITC
Detailed HSN-wise Changes
Food & Beverages (Key Changes)
Essential Foods - NIL Rate
HSN 0401: UHT milk only (other dairy milk already exempt)
HSN 0406: Paneer (pre-packaged and labelled form only)
HSN 1905 & related: All Indian breads by whatever name called
Life-saving drugs: 33+3 specified medicines
Beverages - Rate Changes
HSN 2202: Aerated waters (28% → 40%)
HSN 2202 99 90: Caffeinated beverages (28% → 40%)
Exceptions at 5%: Plant-based milk drinks, soya milk drinks
Tender coconut water: Separate classification, pre-packaged at 5%
Textiles (Comprehensive Changes)
Input Materials (12% → 5%)
HSN 5401-5406: All synthetic filament yarns
HSN 5503-5507: Staple fiber yarns
HSN 5601-5911: Technical textiles, nonwovens, fabrics
Finished Goods (Value-based)
Chapters 61-63: Apparel classification by value per piece
≤₹2,500: 5% GST
>₹2,500: 18% GST
Automotive (Major Restructuring)
Vehicle Categories
HSN 8702: Buses and passenger vehicles (10+ persons) at 18%
HSN 8703: Cars classified by engine/size at 18% or 40%
HSN 8704: Goods transport vehicles at 18%
Motorcycles: Split by engine capacity (≤350cc at 18%, >350cc at 40%)
Uniform Parts Rate
HSN 8507: All batteries at 18%
Various automotive parts harmonized
Healthcare (Systematic Relief)
Drugs and Medicines
Specified 33+3 drugs: NIL rate
All other medicaments: 5% rate
HSN 3001-3006: Comprehensive coverage
Medical Devices
Diagnostic kits: 5% rate
Medical instruments: 5% rate
Vision correction spectacles: 5% rate
FAQ and Key Clarifications
❓ Implementation Questions
Q: When do the new rates take effect?
A: Most changes effective 22nd September 2025. Tobacco products (cigarettes, pan masala, gutkha, unmanufactured tobacco, bidi) after compensation cess obligations are fully discharged (date to be notified).
Q: What about 90% provisional refunds?
A: New system will be implemented by CBIC through administrative notifications (date to be notified).
Q: How does textile value classification work?
A: Based on sale value per piece - ≤₹2,500 at 5%, >₹2,500 at 18%.
Q: What are "Indian breads by whatever name called"?
A: All Indian breads including chapati, roti, khakhra, paratha, porotta - exempted regardless of specific name.
🏢 Business Impact Questions
Q: Will input costs reduce for manufacturers?
A: Yes, significant reductions in textile inputs, food ingredients, medical supplies, and raw materials.
Q: What defines the 40% special rate?
A: Applied to select sin goods (aerated beverages, tobacco when implemented) and luxury items (large cars/SUVs, high-end motorcycles), plus actionable claims.
Q: How will this affect exports?
A: Improved competitiveness due to lower input costs, faster refund processing, and elimination of cess complications.
📋 Compliance Questions
Q: Do I need to re-register?
A: No, but new simplified registration will be available for eligible small businesses (implementation date to be notified by CBIC).
Q: What about existing ITC when rates reduce?
A: Existing ITC can be used for pre-rate change supplies. For exempt supplies post-rate change, ITC must be reversed as per CGST Act provisions.
Q: How do post-sale discounts work now?
A: Streamlined through credit note mechanism without pre-supply agreement requirement, with corresponding ITC reversal by recipients.
About the Author
Nikhil Jain is a Founder and CEO of TAXPATH INDIA with over 7 years of experience in taxation and compliance. He specializes in GST implementation and has helped numerous businesses navigate the complexities of indirect tax compliance
Contact Information:
Email: contact@taxpathindia.com
Phone: +91-9042364130
Website: www.taxpathindia.com
Disclaimer:
This article is for informational purposes only and should not be considered as professional tax advice. Readers are advised to consult qualified tax professionals for specific compliance requirements and business decisions.
