India’s Goods and Services Tax (GST) Council held its 56th meeting on 3 September 2025. The Council approved historic reforms aimed at simplifying the GST framework. These changes mark a shift towards a simpler, fairer, and more growth-friendly tax system. The reforms reflect the vision of Viksit Bharat 2047 by making taxation more transparent and citizen-centric.
Simplification of GST Rates
The GST slabs have been reduced from four to two main rates. The new standard rate is 18% and the merit rate is 5%. A 40% de-merit rate applies to a few select goods. This simplification reduces compliance burdens and enhances predictability for businesses. It also aligns India’s tax system with global best practices.
Relief to Consumers and Households
Essential goods like soap, toothpaste, bicycles, and kitchenware are taxed at 5%. Basic food items such as Ultra-High Temperature milk, paneer, chapati, and paratha are exempt. Packaged foods, noodles, chocolates, and beverages have reduced rates to boost consumption. GST exemption on life and health insurance products makes insurance affordable, especially for senior citizens and low-income groups. Health care benefits include tax relief on essential drugs and treatments for cancer and chronic diseases.
Support for Farmers and Labour-Intensive Sectors
Farm inputs and machinery now attract a 5% GST rate, down from 18%. Fertilisers and chemicals like sulphuric acid and ammonia have also seen rate cuts. This lowers cultivation costs and boosts farm productivity. Labour-intensive sectors such as handicrafts, marble, granite, and leather goods enjoy reduced GST rates. These measures enhance competitiveness and secure employment in traditional industries.
Correction of Inverted Duty Structures
The textile sector benefits from a GST reduction on man-made fibre and yarn to 5%, removing long-standing distortions. Cement’s GST rate has been cut from 28% to 18%, stimulating construction and infrastructure growth. Renewable energy devices and automotive components also receive tax relief, supporting India’s green growth ambitions. Rationalisation in auto parts and hospitality sectors further harmonises the market and reduces disputes.
Institutional and Process Reforms
The Goods and Services Tax Appellate Tribunal (GSTAT) will become operational by year-end 2025. This institution promises faster dispute resolution and consistent rulings. Other reforms include provisional refunds for inverted duty structures and risk-based compliance checks. Harmonisation of valuation rules reduces uncertainty. Together, these reforms enhance India’s ease of doing business on the global stage.
Phased Implementation and Economic Impact
Reforms will be phased in from 22 September 2025 to maintain revenue stability. This approach balances fiscal health with immediate benefits for consumers and industry. The changes are expected to stimulate demand, investment, and growth. The Confederation of Indian Industry (CII) welcomes the reforms as a result of constructive dialogue between government and stakeholders.
Questions for UPSC:
- Discuss in the light of India’s GST reforms how tax simplification can influence economic growth and ease of doing business.
- Critically examine the role of tax policy in supporting agricultural productivity and rural livelihoods in developing economies.
- Explain the concept of inverted duty structures. How do such distortions affect industry competitiveness and export potential?
- With suitable examples, discuss the importance of institutional mechanisms like appellate tribunals in ensuring tax compliance and dispute resolution.
