GST Council Approves Groundbreaking Reforms to Ease Tax System and Benefit Citizens

KalimNews, Kolkata, September 4, 2025: In a landmark decision, the 56th meeting of the GST Council, held in New Delhi on September 3, 2025, marked the approval of significant tax reforms aimed at simplifying the Goods and Services Tax (GST) structure, while ensuring better accessibility, affordability, and transparency. The changes, which are expected to directly impact citizens across sectors such as healthcare, agriculture, transportation, and the common man’s daily necessities, were part of Prime Minister Narendra Modi's vision announced on August 15, 2025, for next-generation GST reforms.

The Council’s wide-ranging reforms prioritize the welfare of the common citizen, small traders, and labor-intensive industries. The approved changes aim at reducing the financial burden on households while promoting ease of doing business, particularly for small enterprises. These include rate rationalization and exemptions across various sectors, ensuring that India’s tax system is more aligned with the aspirations of its citizens.

Key Reforms and Tax Rate Rationalization

The GST Council has approved several measures designed to make goods and services more affordable for citizens. A new two-tiered tax rate structure has been introduced, which will simplify the existing complex four-tiered system. Under this new system, the standard rate will be 18%, while a merit rate of 5% will apply to essential items, with a special de-merit rate of 40% for select goods and services.

One of the most impactful changes is the complete exemption of GST on various life and health insurance policies. This includes individual life insurance policies such as term life, Unit-Linked Insurance Plans (ULIPs), and endowment policies, as well as health insurance policies including family floater plans and senior citizen-specific policies. The move is intended to make insurance more affordable and increase coverage, providing better financial security to the common man.

In another major step towards providing relief to the public, the GST Council has reduced the tax rates on a variety of everyday items. These include common household goods like hair oil, toilet soap, shampoos, toothpaste, bicycles, and kitchenware, which will now attract a GST of just 5%, down from the previous 18% or 12%. The GST on Ultra-High Temperature (UHT) milk, prepackaged chena, and Indian breads like chapatis, rotis, parathas, and parottas has been brought down to zero, offering significant relief to households.

Furthermore, essential food items such as packaged namkeens, bhujia, sauces, pasta, chocolates, coffee, preserved meat, and butter will now be taxed at 5%, a reduction from the previous rates of 12% or 18%. Additionally, the GST on medical essentials has been drastically reduced. Life-saving drugs, including those used in cancer and rare diseases, will now be exempt from GST, while other medical supplies and equipment will also see reduced tax rates, making healthcare more accessible to all citizens.

The Council has also approved a reduction in GST for goods crucial to economic development and agriculture. GST on tractors, machinery for farming and horticulture, as well as agricultural machinery such as grass mowers and composting machines, will be reduced to 5%. Similarly, GST on labor-intensive goods such as handicrafts and marble blocks will also be reduced to 5%, benefiting artisans and small businesses. The tax on cement will be reduced from 28% to 18%, further aiding the construction and infrastructure sectors.

Other significant reductions include the GST on air conditioning machines, small cars, and motorcycles (up to 350 CC), which will be reduced to 18%, while buses, trucks, and ambulances will also see a tax reduction from 28% to 18%.

Reforms in the Textile and Fertilizer Sectors

The GST Council has taken corrective action to address the inverted duty structure in key sectors. For the textile sector, the GST on manmade fibers has been reduced from 18% to 5%, and the tax on manmade yarn has been lowered from 12% to 5%. Similarly, for the fertilizer industry, the GST on sulfuric acid, nitric acid, and ammonia has been reduced from 18% to 5%.

Promoting Renewable Energy and Wellness

As part of the government’s push for a cleaner, greener future, GST on renewable energy devices and their components will be reduced to 5%. Furthermore, the GST on services related to physical well-being, including those offered by gyms, yoga centers, salons, and barbershops, will be cut from 18% to 5%, making these services more affordable and accessible to the general public.

Establishment of the GST Appellate Tribunal (GSTAT)

A key reform in the administrative side of GST was the recommendation for the operationalization of the Goods and Services Tax Appellate Tribunal (GSTAT). The GSTAT is expected to accept appeals before the end of September 2025, and hearings will begin by December 2025. This move is designed to expedite dispute resolution, enhance consistency in advance rulings, and offer greater legal certainty to taxpayers.

The GSTAT will also serve as the National Appellate Authority for Advance Ruling, ensuring that businesses and individuals can seek clarifications on tax matters more efficiently. The creation of GSTAT is expected to strengthen the institutional framework of GST and facilitate smoother compliance.

Phased Implementation and Further Process Reforms

The new tax rates and exemptions are scheduled for phased implementation, with most changes taking effect from September 22, 2025. However, changes for certain goods like pan masala, cigarettes, and chewing tobacco will be postponed until the completion of the loan and interest payment obligations under the compensation cess account. The Central Board of Indirect Taxes and Customs (CBIC) will begin administrative implementation of the new system, including 90% provisional refunds arising out of the inverted duty structure.

The Council has also approved several procedural reforms to ease the compliance burden on businesses and enhance trade facilitation. These include measures to align valuation rules with changes in the tax rates for lottery tickets and the taxability of restaurant services.

Conclusion

The reforms approved by the GST Council represent a fundamental shift towards a more citizen-centric and business-friendly tax system. By focusing on essential goods and services, the changes aim to reduce the financial burden on the common man, while simultaneously boosting economic growth by making India’s tax framework more efficient and transparent. These steps align with the broader goal of creating a more equitable and sustainable economy for all citizens.

These changes are expected to bring significant relief to various sectors and improve the quality of life for every Indian, especially the middle class, small traders, and those in need of essential goods and services. The upcoming operationalization of GSTAT and further process reforms will ensure that the tax system remains efficient, equitable, and responsive to the needs of a growing and diverse economy.