Highlights of the 56th GST Council Meeting: Major Reforms and Rate Rationalisation

The 56th GST Council Meeting, chaired by Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman, was held in New Delhi on 3rd September 2025. This meeting marked a significant milestone in India’s tax reform journey, aligning with the next-generation GST reforms announced by Prime Minister Shri Narendra Modi during his Independence Day address. 

The decisions taken are expected to ease the compliance burden, reduce tax rates on essential goods and services, and boost affordability for the common man while simultaneously supporting India’s economic growth. 

Key Highlights of the 56th GST Council Meeting

1. Simplified Tax Structure – From 4 Tiers to 2 Tiers

• Introduction of a ‘Simple Tax’ structure with just two primary rates:
  
  
  • Standard Rate: 18%
    
    
  • Merit Rate: 5%
    
• A special de-merit rate of 40% will continue for select goods and services.
  
  
• This major step will make GST simpler, more transparent, and citizen-friendly.

2. Relief for Citizens – Insurance Policies Exempted from GST

• Life Insurance Policies: Term life, ULIP, and endowment policies made GST-free.
  
  
• Health Insurance Policies: Individual, family floater, and senior citizen policies exempted from GST.
  
  
• Reinsurance of these policies is also exempted.
  This will make insurance more affordable and help expand coverage across India.

3. Major GST Rate Reductions on Goods

a. Essential Household Goods

• Reduction from 18%/12% to 5%: Hair oil, shampoos, soaps, toothbrushes, toothpaste, bicycles, tableware, kitchenware, and more.
  
  
• Reduction from 5% to NIL: UHT milk, paneer, chapati/roti, paratha, parotta, and other Indian breads.

b. Food Items

• Reduction from 12%/18% to 5%: Packaged namkeens, sauces, pasta, instant noodles, chocolates, coffee, cornflakes, butter, ghee, preserved meat, etc.

c. Consumer Durables & Automobiles

• GST reduced from 28% to 18% on ACs, TVs (all sizes ≤32”), dishwashers, motorcycles ≤350cc, and small cars.
  
  
• Cement: Reduced from 28% to 18%.
  
  
• Buses, trucks, ambulances: Reduced from 28% to 18%.
  
  
• Auto parts: Uniform GST rate of 18%.
  
  
• Three-wheelers: Reduced from 28% to 18%.

d. Agriculture & Labour-Intensive Sectors

• Reduction from 12% to 5%: Tractors, agricultural and harvesting machinery, composting machines.
  
  
• Reduction from 12% to 5%: Handicrafts, marble and granite blocks, intermediate leather goods.

e. Healthcare & Medicines

• Lifesaving drugs:
  
  
  • 33 medicines reduced from 12% to NIL.
    
    
  • 3 medicines (for cancer, rare, and chronic diseases) reduced from 5% to NIL.
    
• Other drugs were reduced from 12% to 5%.
  
  
• Medical devices:
  
  
  • Reduction from 18% to 5%: Surgical, dental, veterinary, and diagnostic devices.
    
    
  • Reduction from 12% to 5%: Bandages, diagnostic kits, glucometers, and other medical supplies.

f. Renewable Energy & Hospitality

• Renewable energy devices: Reduced from 12% to 5%.
  
  
• Hotel accommodation ≤ ₹7,500 per night: Reduced from 12% to 5%.
  
  
• Beauty and wellness services (salons, gyms, yoga centres, barbers, etc.): Reduced from 18% to 5%.

4. Correcting Inverted Duty Structures

• Manmade textiles: Fibre reduced from 18% to 5%, yarn reduced from 12% to 5%.
  
  
• Fertilizers: Sulphuric acid, nitric acid, and ammonia reduced from 18% to 5%.

5. GST on Tobacco & Pan Masala

• GST will now be levied on Retail Sale Price (RSP) instead of transaction value for pan masala, gutkha, cigarettes, chewing tobacco, etc.
  
  
• Existing high rates to continue until compensation cess obligations are cleared.

Implementation Timeline

• 22nd September 2025: Rate changes for services and most goods will take effect.
  
  
• Tobacco and pan masala products: Existing rates will continue until cess obligations are discharged.
  
  
• Phased implementation ensures smooth transition without disrupting government revenue needs.

Trade Facilitation Measures

a. Process Reforms

• Multiple process simplifications and compliance relaxations to be notified soon.
  
  
• 90% provisional refunds for inverted duty structure cases to be processed on a system-based risk evaluation model.

b. GST Appellate Tribunal (GSTAT)

• To be operational by September 2025 for accepting appeals.
  
  
• Hearings to commence by December 2025.
  
  
• The Principal Bench of GSTAT will also act as the National Appellate Authority for Advance Ruling.
  
  
• This will provide certainty, faster dispute resolution, and ease of doing business.

Conclusion

The 56th GST Council Meeting represents a landmark step in making GST simpler, fairer, and more inclusive. From reducing rates on essential goods and services to rationalising the tax structure, the reforms are designed to benefit common citizens, farmers, small traders, MSMEs, and labour-intensive industries, while also boosting economic growth.

These reforms reflect India’s move towards a citizen-centric tax regime that balances revenue needs with affordability, ensuring that GST continues to be a tool for both nation-building and ease of doing business.