the story So Far: On 3 September, the GST Council authorized a new paradigm in indirect tax rule. There will be low rates, and goods and service tax (GST) on most goods are reduced. While it has been welcomed by most areas, there are some that are somewhat dissatisfied. There are also concerns over revenue implications.
Also read GST Revamp: Who benefits? Full item-wise roundup
What inspired these changes?
The rationalization of several rates in GST has long been on the evil. The council formed a group of ministers (GOM) in September 2021 to see rate rationalization. This gom started its work, but seems to have made very little progress. The GOM was fully designed by representatives of the states, with no representatives from the center. Therefore, to strip it in the direction that the Union Government had to make a proposal to the GOM. On August 15, 2025, the Finance Ministry announced that it had submitted its proposal to GOM. Earlier on the same day, in his Independence Day speech, Prime Minister Narendra Modi announced that it would be a Diwali gift for the “next generation” GST reform nation.
By August 21, 2025, GOM – after a briefing by Union Finance Minister Nirmala Sitarman – had accepted the proposals and sent them to the GST Council. The council then discussed these proposals during a 10.5-hour long meeting on 3 September, after which it announced its decisions.
What are changes?
The current GST structure has several rates, even when only the main people are considered. The main rates include a compensation cess above and above 0%, 5%, 12%, 18%, 28%, and 28%slabs. It is reduced to the main slab of 0%, 5%, 18%and 40%. Compensation cess for most goods has been removed. It is still planted on tobacco products, but even it will be removed by the end of this calendar year, when the Center pays back the loan taken to compensate the states during the Covid -19 epidemic.
In addition, many items have been reduced and taken to the slab. According to an analysis of the Economics Research Wing of State Bank of India, out of 453 items, who saw changes in their GST rate, rates were being cut in 413 (or slightly more than 91%), while 40 items saw an increase in rates. The rate of rate reduction – 257 items, mostly general use products – from 12% to 5% slabs. Of those 40 items, which saw an increase in their rates, 17 were transported from 28% slab to 40%. Here, it is important to note that the actual tax phenomenon would not have increased. For example, after adding compensation cess once, the effective tax rate on luxury cars and SUVs is 45–50%. It will go down by 40%.
What has changed in GST and what does it mean?
The GST Council has reduced the rates in the necessary, healthcare, agriculture, study materials and vehicles, moving towards a simple 2-day structure. Daily accessories, agricultural equipment and insurance become cheaper, but the cost of luxury cars, large bikes and premium clothes may be higher. What does this mean for the state’s revenue and finance of the Center? The Hindu’s economics and business editor, TCA Sharad Raghavan, breaks it. , Video Credit: The Hindu
Why were they necessary?
There are many reasons that the reduction in GST rate now makes sense. The first is that the legal period for GST compensation cess is likely to come at the end of this calendar year. It can be applied by 31 March, 2026 or as long as the Center pays its loan, whichever is earlier. Ms. Sitarman said that she hopes that this calendar will repay the loan in the year. Without increasing the base rates on tobacco products, removing this cess would mean that these ‘sin’ goods would suddenly become cheaper. This is something that the central government cannot be seen condensed. A time limit was set to implement the new rates. The second reason is that the government expects any harmful effects from India from 50% tariff imposed by the US on imports from India. This is clear from the fact that, despite a strong 7.8% GDP increase in Q1 of this financial year, the government has not changed its 6.3% -6.8% increase for the whole year, which means that the growth in later quarters is expected to slow down. GST rate cuts are expected to offset this hit. However, the government has officially denied any such relationship, saying that GST change was part of a overall reforms and not related to tariffs.
Which areas were happy with reforms?
The healthcare industry voiced its approval of changes, stating that the decision to reduce GST from 12% to 5% in the region on a wide range of medical products will directly benefit patients. The renewable energy sector also praised the decision to reduce taxes from 12% to 5% on renewable energy components, stating that it was a progressive step towards accelerating India’s clean energy infection. Consumer equipment manufacturers were also excited about cuts, saying that it would promote demand, especially in the festive season.
The real estate sector stated that bringing the GST rate on cement from 28% to 18%, and on other construction materials such as granite slabs, will reduce the cost for the region and a major boost. Auto manufacturers said that GST deficiency on cars and non-wooden bikes would increase demand from 28% to 18%.
GST tax reform: What is really cheap from 22 September?
GST tax reform: What is really cheap from 22 September? , Video Credit: The Hindu
Which areas gave reservation voice?
The textile industry welcomed 5% of the amendment below the GST rates for both man -made fiber and cotton areas, but at the same time gave voice to its disappointment on 18% duty for clothes priced above ₹ 2,500. He said that woollens, wedding dress and traditional Indians will become more expensive.
While the auto manufacturers welcomed the rationalization, dealers voiced some concerns about consumers who postponed their purchases by 22 September, when the new rates came into force. He also clearly called for clarity what they are on vehicles that they bought from manufacturers but have not been sold yet.
The insurance area will probably also see a mixed picture from the GST rate cut. GST will increase insurance penetration from personal life and health insurance exemption, but removing input tax credit simultaneously can increase the cost for insurers, which can lead to food in their profits.
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The airlines have slammed high GST in collectively non-economic seats, while vegetable oil producers said that the council can solve the reverse duty structure on edible oils-something that did for fertilizers and man-made clothes. The increase in GST rate for labor fee from 12% to 18% has also resisted some resistance to representatives of the MSME region, who said their cost will increase.
What is revenue effect?
The Center said that the revenue implication will be ₹ 48,000 crore on the basis of consumed pattern in 2023-24. However, the actual effect will be detected only when the new data is obtained. The SBI Research team estimates that it is a very small of 3,700 crore. Opposition states, however, are worried. They have voiced their demand for a cess imposed on goods in 40% slab, of which income can be used to compensate states for revenue hits. This was not accepted by the council. States will have to search for their own sources and 16th Finance Commission, so that any damage can be done.
Published – 07 September, 2025 02:23 AM IST
