56th GST Council Meeting: Key Highlights and Reforms

The 56th GST Council meeting, chaired by Union Finance Minister Nirmala Sitharaman on 3rd September 2025 in New Delhi, marked one of the most significant overhauls of India’s indirect tax system since its inception in 2017. The meeting, which continues till 4th September, focused on next-generation GST reforms, with an emphasis on reducing the burden on the middle class, simplifying compliance for businesses, and ensuring better revenue collection. A key highlight was the Council’s decision to merge four tax slabs into two main ones—5% and 18%—while creating a special 40% slab for sin and luxury goods. The reforms are expected to make goods of mass consumption cheaper, boost consumer spending, and streamline the GST structure.

Introduction of a Two-Tier GST Structure

The Council approved a long-pending reform by eliminating the 12% and 28% tax slabs. Instead, a simplified structure will now function with just 5% and 18% rates, covering the majority of goods and services. This change was described as a step towards transparency and ease of doing business. At the same time, the Council introduced a 40% slab for sin and luxury goods, ensuring that while essential items become more affordable, items such as tobacco, pan masala, high-end automobiles, yachts, and aerated drinks contribute higher revenue. According to the Finance Minister, the guiding principle behind this change was to reduce the burden on common households and uplift sectors like healthcare, education, and agriculture.

Relief for Households and Daily Essentials

A major portion of the reforms targeted everyday consumer goods. Items such as hair oil, shampoo, toothpaste, soaps, toothbrushes, shaving cream, and tableware saw their tax rates slashed from 18% to 5%. Similarly, butter, ghee, cheese, and dairy spreads were brought down from 12% to 5%. The Council also moved pre-packaged snacks like namkeens, bhujia, and mixtures, along with utensils, baby feeding bottles, clinical diapers, and sewing machines, into the lower 5% bracket. These decisions are likely to provide immediate relief to middle-class families, easing their monthly expenses on essential items.

Support for Farmers and Agriculture

Farmers also received considerable benefits from the revised tax structure. Tractors, tractor tyres, pesticides, bio-nutrients, drip irrigation systems, and sprinklers were moved from higher slabs to just 5%. Agricultural machinery used for soil preparation and cultivation has also been included in the lower bracket. These changes aim to reduce the cost burden on farmers, making farming equipment and inputs more affordable, and thereby promoting productivity in the agricultural sector.

Focus on Healthcare and Medicines

The healthcare sector witnessed some of the most important tax exemptions. Life and health insurance premiums, earlier taxed at 18%, were made completely GST-exempt. Critical healthcare products such as thermometers, glucometers, diagnostic kits, medical-grade oxygen, and corrective spectacles now attract only 5% GST. Most notably, 33 life-saving drugs and medicines have been exempted from GST entirely. Additionally, highly specialised medicines like Agalsidase Beta, Imiglucerase, and Eptacog Alfa have also been moved from 5% to nil tax. These changes are expected to reduce healthcare costs and provide relief to patients suffering from chronic and rare diseases.

Changes in Automobiles and Consumer Durables

The automobile sector has been a key beneficiary of the new reforms. Small petrol and diesel cars, hybrid vehicles, motorcycles up to 350cc, three-wheelers, and commercial vehicles like trucks and ambulances, previously taxed at 28%, will now attract just 18%. This change is expected to reduce vehicle prices and encourage demand in the auto sector. Similarly, consumer durables and electronic appliances such as air conditioners, televisions of all sizes, dishwashing machines, monitors, and projectors have been shifted from the 28% slab to the 18% slab. The decision is aimed at boosting domestic demand and supporting the manufacturing industry.

Introduction of the 40% Sin and Luxury Goods Slab

To balance revenue losses from reduced rates on essentials, the GST Council created a new 40% slab for sin and luxury goods. Products in this category include pan masala, gutkha, cigarettes, bidis, aerated waters, caffeinated drinks, carbonated fruit juices, luxury cars beyond small-car limits, motorcycles above 350cc, yachts, aircraft for personal use, and firearms such as revolvers and pistols. Additionally, casinos, betting, gambling, race clubs, online gaming, and licensing of bookmakers will now attract 40% GST with input tax credit. This steep tax rate ensures that luxury consumption and harmful products remain a significant revenue source without affecting common households.

Rate Hikes in Mining, Paper, and Textiles

Certain sectors saw increases in GST rates. For instance, coal, lignite, and peat, earlier taxed at 5%, will now attract 18% GST, which could raise input costs for coal-dependent industries. In the paper sector, chemical wood pulp and various paperboards moved from 12% to 18%. Similarly, in textiles, apparel and quilts priced above ₹2,500 have been shifted from 12% to 18%. These changes, though likely to increase costs in specific industries, are intended to correct anomalies and boost government revenue.

Compliance and Refund Simplifications

Beyond rate revisions, the Council also announced several compliance reforms. A new system will allow automatic GST registration within three days for low-risk applicants, benefiting nearly 96% of new businesses. Refund procedures were simplified, with a revised system enabling 90% provisional refunds based on automated data analysis from November 2025. Exporters will also benefit from the removal of thresholds for tax refunds, easing compliance for small and medium-sized firms.

Tribunal and Legal Reforms

The Council confirmed that the Goods and Services Tax Appellate Tribunal (GSTAT) will become operational by the end of 2025. The Principal Bench of the GSTAT will also function as the National Appellate Authority for Advance Ruling. Appeals must be filed before 30th September 2025, hearings will commence by 31st December 2025, and pending appeals must be filed by 30th June 2026. The Council also amended CGST Sections 15 and 34 related to discounts and credit notes, ensuring better clarity and reducing litigation.