Goods and Services Tax (GST) Reforms 2025

Goods and Services Tax (GST) Reforms 2025

Context :

  • The 56th meeting of the GST Council was held in New Delhi on September 3, 2025. During this meeting, the council approved the next generation of GST reforms that were announced by Prime Minister Narendra Modi in his Independence Day address from the ramparts of the Red Fort.
  • The GST Council approved a series of multi-sectoral and multi-disciplinary reforms aimed at improving the lives of citizens and ensuring the ease of doing business for small traders and businesses.
  • The reforms focus on rationalizing tax rates for key sectors driving the economy, including the common man, labor-intensive industries, farmers, agriculture, and healthcare.

7 Pillars of Next-Gen GST Reforms :

Pillar 1: Building on the Success of GST

  • One Nation, One Tax.
  • Expanded taxpayer base.
  • Simplified 2-tier system (5% & 18%).
 Pillar 2: Rationalizing Rates for Fairer Taxation

  • Smoother duty structures.
  • Faster processing of refunds.
Pillar 3: Simplifying Filing Through Technology

  • Easy registration for small and low-risk businesses.
  • Up to 90% upfront provisional refunds for exporters.
  • Digital compliance with e-invoicing.
  • AI-driven risk detection.
 Pillar 4:  Putting consumers first.

 

  • Essential goods are placed in the 0-5% bracket.
  • High-value items like cars down from 28% > 18%
Pillar 5: Empowering MSMEs and Manufacturers

  • fixed Inverted duty structures
  • Rates were simplified to support the ‘Make in India’ initiative.
 Pinar 6: Stronger States, Stronger Bharat

  • Sustainable revenue growth for all states.
  • Rationalized rates will increase demand.
Pillar 7: Lower Taxes = Higher Spending

  • Families buy more, which leads to increased demand and industrial growth.
  • Cheaper appliances and electronics will boost demand.

 

Key Reforms :

  • Simplified Tax Structure :
  • The existing 4-tier tax rate framework has been streamlined into a citizen-friendly ‘Simple Tax’ system with two rates: a standard rate of 18% and a merit rate of 5%.
  • A special demerit rate of 40% has been set for certain selected goods and services.
  • Reduced GST on Daily Use Items
  • GST on many items of daily use, such as hair oil, toilet soap, shampoo, toothbrush, toothpaste, bicycles, tableware, kitchenware, and other household goods, has been reduced from 18% or 12% to 5%.
  • Reduced GST on Food Items
  • Zero GST: Products like Ultra-High Temperature (UHT) milk, Pre-packaged and labelled chena or paneer, all the Indian Breads will see NIL
  • 5% GST: GST on almost all food products, including packaged snacks (namkeen), bhujia, sauces, pasta, instant noodles, chocolate, coffee, preserved meat, cornflakes, butter, and ghee, has been reduced from 12% or 18% to 5%.
  • Reduced GST on Electronics and Vehicles
  • GST on air conditioning machines, 32-inch TVs (all TVs are now at 18%), dishwashing machines, small cars, and motorcycles with an engine capacity of 350cc or less has been reduced from 28% to 18%.
  • Reduced GST on Lifesaving Medicines and Medical Equipment
  • GST on 33 lifesaving medicines has been reduced from 12% to zero, and on three medicines used to treat cancer, rare diseases, and other serious chronic illnesses, it has been reduced from 5% to zero.
  • GST on all other medicines and drugs has been reduced from 12% to 5%.
  • GST on various medical instruments and devices used for medical, surgical, dental, or veterinary purposes, or for physical or chemical analysis, has been reduced from 18% to 5%.
  • Reduced GST on Renewable Energy and Agricultural Equipment
  • Renewable Energy: Reduction of GST from 12% to 5% on renewable energy devices and parts for their manufacture.
  • Agricultural Equipment: Reduction of GST from 12% to 5% on agricultural goods, such as tractors, agricultural, horticultural or forestry machinery for soil preparation or cultivation, harvesting or threshing machinery, including straw or fodder balers, grass or hay mowers, composting machines etc.
  • Higher GST on Luxury and De-Merit Items
  • A 40% tax rate on narcotics like pan masala and tobacco, and luxury products like aerated drinks, expensive cars, yachts, and private aircraft, ensures fairness and revenue balance.
  • GST for the Next Generation: Benefits for All
·       Lower prices, higher demand

·       Ease of living.

·       Broader tax net.

·       Support for manufacturing.

 ·       Help for MSMEs.

·       Revenue growth.

·       Economic momentum.

·       Social security.
  • Why GST Is a Milestone :
  • Subsumed 17 different taxes and 13 cessesinto one unified tax.
  • Eliminated cascading of taxes (tax on tax).
  • Created a single national marketwith common rates and procedures.
  • Simplified compliance and improved transparency.
  • Symbolized economic integration of the country.

Note: The new tax slabs will be implemented from September 22, 2025.

 

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