The 56th GST Council Meeting, chaired by Finance Minister Nirmala Sitharaman, took important decisions on GST reforms aimed at simplifying tax slabs, offering relief on daily essentials, and rationalising rates across sectors.
These reforms aim to benefit common taxpayers, farmers, and businesses, and are poised to be implemented by Navratri 2025.
What Could Become More Expensive?
The Council proposed higher GST rates on specific categories, mainly considered "sin goods" and luxury items, which are expected to carry heavier taxation to compensate for revenue loss elsewhere. These include:
- Sin goods and luxury items: High-end cars, alcohol, gambling, soft drinks, drugs, fast food, coffee, sugar, tobacco products, etc.
- Fuel-derived items: Briquettes, coal, and other products derived from coal, lignite, and peat.
- Ready-made garments above ₹2,500.
A special 40% GST rate will likely be introduced in these categories, replacing some existing cess mechanisms with a streamlined tax system.
Daily Items Expected to Get Cheaper
Many everyday items currently in the 12% GST slab will be shifted to the 5% slab, making them more affordable. These include:
- Feeding bottles, carpets, umbrellas, bicycles, utensils, furniture
- Jute or cotton handbags, pencils, and footwear priced below ₹1,000
Food Goods to Become More Affordable
Certain food products will move from 12% to 5% GST, easing the prices of:
- Condensed milk, dried fruits, frozen vegetables
- Sausages, pasta, jams, and namkeens
Everyday Essentials Likely to Get Cheaper
The reforms could reduce prices for:
- Groceries, including fruits and vegetables
- Medicines and tooth powder
- Electronics like ACs, TVs, refrigerators, and washing machines
- Agricultural equipment, bicycles
- Insurance and education services
Beneficiaries: Common People and Farmers
Since GST is a consumption-based tax, end consumers, the general public, and farmers stand to benefit the most from these reforms. Nearly 175 items are expected to have their GST rates cut, easing the cost of living and boosting economic activity.
GST Tax Slabs Under Discussion
The prominent structural shift is the proposal for a two-slab GST structure:
- 5% slab: For essential goods and services
- 18% slab: For non-essential goods and most services
This would take the place of the existing four tax slabs of 5%, 12%, 18%, and 28%. A 40% special GST rate is planned for sin goods and luxury cars priced above ₹50 lakh.
Compensation Concerns
States governed by the opposition have called for full compensation for any revenue loss caused by the GST restructuring. Discussions continue on mechanisms to protect state revenues post-implementation.
Compliance and Efficiency Improvements
The Council also announced administrative improvements, such as:
- GST registration to be issued within 3 working days
- GST refunds to be processed within 7 working days
Day 2 Updates: 56th GST Council Meeting
The second day of the 56th GST Council meeting was a landmark event, unveiling India’s next-generation GST reforms.
This session finalized major rate rationalisations, sectoral reforms, and procedural clarifications that promise to simplify the GST framework, boost consumption, and make compliance easier for businesses, especially small traders and MSMEs.
Simplified GST Rate Structure
A major highlight was the finalisation of a simplified two-tier GST rate structure of 5% and 18%, effective from September 22, 2025. This move replaces multiple earlier slabs, including 12% and 28%, significantly easing the tax structure for millions. The Council also set a 40% GST rate on sin and luxury products such as tobacco, pan masala, large SUVs, and sugary drinks.
Sector-Specific Reforms and Benefits
Several key sectors received notable rate cuts designed to stimulate demand and reduce costs:
- Automobiles: GST on two-wheelers up to 350cc and small cars is cut to 18% from the previous higher slabs, with SUVs and luxury vehicles now taxed at 40%. Electric vehicles continue to enjoy a favourable 5% rate.
- Cement and Construction: GST on cement was reduced from 28% to 18%, which is expected to boost the infrastructure sector. Construction services are now taxed at 18% with an input tax credit.
- Consumer Staples: Daily essentials like toothpaste, hair oil, shampoo, biscuits, and processed foods saw rates drop to 5%, which is expected to increase affordability and volumes.
- Insurance: Individual life and health insurance policies will now be exempt from GST.
- Coal and Paper: GST on coal increased to 18%, while apparel was above Rs 2,500, and paper products moved to the 18% slab.
Input Tax Credit and Compliance Measures
Input Tax Credit (ITC) provisions align with the CGST Act, ensuring businesses can claim credit on eligible purchases. The Council clarified that any ITC accumulated under the old higher rates can be utilised against output tax liabilities before September 22, 2025. Still, reversals will be required on exempt supplies under the new rates from that date.
Economic Impact and Fiscal Outlook
Economists project these reforms will add 100 to 120 basis points to India’s GDP growth over the next 4-6 quarters. Though the rate rationalisation is expected to cause a revenue shortfall of approximately Rs 48,000 crore initially, this is anticipated to be offset by higher consumption, buoyant tax collections, and structural reforms boosting ease of doing business.
Institutional and Procedural Enhancements
- The Goods and Services Tax Appellate Tribunal (GSTAT) will be operational by the end of September 2025, streamlining appeals and providing greater legal certainty.
- Measures to facilitate trade were approved, such as simplified GST registration for small businesses and provisional refunds for inverted duty structures.
- Clarifications were issued to eliminate ambiguities in tax treatment for sectors like hospitality and retail.
Industry Responses & Summary
The reforms received broad support from government leaders, industry bodies, and investors who hailed them as transformative for India’s tax landscape and economy.
Union Finance Minister Nirmala Sitharaman emphasised these reforms were aimed at easing living costs for the ordinary person, empowering small businesses, and promoting self-reliance under Atmanirbhar Bharat.
In summary, the 2nd day of the 56th GST Council meeting set the stage for a more streamlined, growth-oriented GST system with sector-specific support and procedural reforms. With the new slab structure kicking in before the festive season, the move is expected to boost demand, ease compliance, and accelerate India’s economic momentum into FY26 and beyond.
This landmark GST 2.0 reform framework balances revenue considerations with the need to energise consumption and investment, signalling a new chapter in India’s indirect tax regime.
At Suvit, we review these reforms closely because they will significantly impact how businesses manage their GST compliance, input tax credit reconciliation, and reporting.
Bringing this to light helps our clients and readers understand the changes ahead and prepare their accounting systems for smoother, automated GST processes that reduce errors and improve efficiency in this evolving tax landscape.
