The aim is to simplify India’s indirect tax framework, improve ease of doing business, and make goods and services more affordable for citizens across all sectors. The new rates are set to come into effect on 22 September 2025.

The Press Information Bureau has released a statement from India’s Ministry of Finance outlining the decisions of the 56th GST Council meeting, held on 3 September 2025.

These reforms are part of the “next-generation GST” initiative announced by Prime Minister Shri Narendra Modi. The aim is to simplify India’s indirect tax framework, improve ease of doing business, and make goods and services more affordable for citizens across all sectors.

The new rates are set to come into effect on 22 September 2025.

Key decisions of the GST Council

Simplified tax structure

  • The current four-tier GST system will be rationalised into a simpler framework:
    • Standard Rate: 18%
    • Merit Rate: 5%
    • De-merit Rate: 40% (for a select set of goods and services)

Small business relief measures

The GST Council has proposed an optional, streamlined registration scheme for small, low-risk businesses, allowing automatic registration within three working days. This scheme targets taxpayers whose monthly output tax on sales to registered buyers does not exceed INR 250,000.

Additionally, a simplified registration process has been approved for small suppliers selling through e-commerce platforms, reducing the need to have a physical business location in each state.

Agriculture and labour-intensive sectors

  • Tractors and agricultural machinery reduced from 12% to 5%.
  • Handicrafts, granite/marble blocks, and intermediate leather goods cut from 12% to 5%.
  • Fertilizer inputs such as sulphuric acid, nitric acid, and ammonia reduced from 18% to 5%.

Automobiles and transport

  • GST on small cars and motorcycles (up to 350cc) reduced from 28% to 18%.
  • Buses, trucks, and ambulances reduced from 28% to 18%.
  • Three-wheelers also reduced from 28% to 18%.
  • A uniform 18% rate introduced for all auto parts.

Housing and construction

  • Cement reduced from 28% to 18%.

 Renewable energy and hospitality

  • Renewable energy devices and parts reduced from 12% to 5%.
  • Hotel accommodation priced up to INR 7,500 per unit per night reduced from 12% to 5%.

 Services for the common man

  • GST on gyms, salons, barber services, yoga centres, and similar wellness services reduced from 18% to 5%.

Industry-specific reforms

Correction of inverted duty structure in the textile sector:

  • Manmade fibre reduced from 18% to 5%
  • Manmade yarn reduced from 12% to 5%

Relief for households and daily-use items

  • GST on essentials like hair oil, soap, shampoos, toothbrushes, toothpaste, bicycles, tableware, and other household goods reduced from 18%/12% to 5%.
  • UHT milk, packaged paneer, and all types of Indian breads (roti, paratha, parotta, etc.) moved to a 0% GST rate.
  • Packaged food products such as namkeens, noodles, sauces, chocolates, coffee, cornflakes, butter, and ghee reduced from 12%/18% to 5%.

Healthcare and insurance

  • GST fully exempted on all individual life insurance and health insurance policies (including family floaters and senior citizen policies) and their reinsurance.
  • 33 lifesaving medicines reduced from 12% to 0%, and three critical medicines for cancer, rare, and chronic diseases reduced from 5% to 0%.
  • Other medicines cut from 12% to 5%.
  • Medical devices such as glucometers, diagnostic kits, bandages, gauze, and reagents reduced from 12%/18% to 5%.

Earlier, Indian Prime Minister Narendra Modi announced on 15 August 2025, that the government will introduce “next generation” reforms in the GST by Diwali.