Under discussion, the GST council has approved a new two-rate system for most of the goods. And previous slabs of 12% and 28% have been removed. Such will lower down the prices of goods, will lead to increase in demand and growth in the economy.
The 56th GST (Goods and Services Tax) Council Meeting on Wednesday (September 03, 2025) began in New Delhi, chaired by Finance Minister Nirmala Sitharaman. This two day meeting is set for the discussions of GST reforms.
The will mark its closure on Wednesday. The Ministers from all the states attended the meeting. And, it is expected that the meeting will bring significant change to India’s indirect tax structure.
Discussions at the 56th GST Council Meeting
Under discussion, the GST council has approved a new two-rate system for most of the goods. And previous slabs of 12% and 28% have been removed. Such will lower down the prices of goods, will lead to increase in demand and growth in the economy.
Daily-Use Goods
Under the next generation GST Reforms, the prices of daily-use goods are likely to be reduced. The reforms propose that there can be seen elimination with caps between brackets 12% and 28%. At present, there are four GST slabs, that are 5%, 12%, 18% and 28%. However, as per the going discussions, most of the goods would be placed under either 5% and 18%.
With this, many of the daily use items may see price cuts. These goods include some food items, medicines, medical devices, footwear and apparel. The food items will include-
- Ghee
- Nuts
- Drinking Water (20 litre)
- Non-Aerated Drinks
- Namkeen
In simplified terms, at present, items up to INR 1000 have GST with 5% and items above INR 1000 are taxed at 12%. However, now, items above INR 2500 will be taxed at 5%.
Automobiles
While the discussions are underway at the meeting, a special 40% tax has been proposed for Luxury Automobiles. As per current Tax structure, 28% GST plus Compensation Cess which varies by vehicle type.
However, as per the new tax structure, it is proposed that all entry level and small cars will be taxed at 18%. And, SUVs and luxury cars will be taxed at 40% special tax. Such will reduce the demand of such cars, and will raise the demand of small cars.
KEY HIGHLIGHTS
- Tobacco, Pan Masala, and Luxury Cars to be taxed at a special 40% rate.
- EVs priced between INR 20 and INR 40 Lakh may have increased from 5% to 18%. However, EVs above INR 40 Lakh fall under 40% tax rate.
- GST may rise from 5% to 18%, with cess being removed.
- Clothing above ₹2,500 per piece could have increased GST from 12% to 18%.
Sin Goods
According to the 56th GST Council Meeting discussions, there has been a special 40% tax rate proposed for sin goods. These goods involve Tobacco, Pan Masala and Cigarettes. There could also be an additional tax on top of the proposed tax rate.
Health and Term Insurance
According to the present GST regulations, health and term insurance are taxed at 18%. However, discussions are underway for this. As per the sources, there may be the following options:
- 0% GST but no Input Tax Credit (ITC)
- 5% GST with or without ITC
- 12% GST with ITC
Notably, ITC is an Input Tax Credit, a mechanism under the GST. This allows businesses to reduce the tax it pays on its output by claiming credit for the GST paid on its inputs.
Opposition States Demand Compensation for GST Revenue Loss
As there has been reduction in the GST rates, opposition ruled states are demanding compensation from Centre due to the loss of revenue that the change in GST rates will enforce. The states are concerned over the removal of 12% and 28% GST slabs.
There are eight opposition ruled states which include Himachal Pradesh, Jharkhand, Karnataka, Kerala, Punjab, Tamil Nadu, Telangana and West Bengal.
