Sitharaman Wraps Up Two-Day Council Meet In One; New GST Regime From 22 September

What was supposed to be a two-day meet of the GST Council was concluded in one day after a session that lasted 10.5 hours. At the end of the meeting, the Goods and Services Tax (GST) Council approved a new two-rate structure for India’s GST. 

The landmark decisions were announced by Finance Minister Nirmala Sitharaman, following the 56th meeting of the Council in New Delhi on Wednesday. The meeting was attended by Ministers from the Union Finance Ministry and those from 31 states and Union Territories. 

Here are the highlights from Sitharaman’s announcements and from the Council meeting:

Streamlined Two-Rate System

The Council approved the recommendations of various Groups of Ministers (GoM), most importantly the GoM on rate rationalisation. India will now be moving away from the current complex four-tier GST framework to a simplified two-rate model. 

Under the new system, most goods and services will be taxed at either a standard rate of 18 per cent or a merit rate of 5 per cent.

When will the new rates come into effect?

All new GST rates will take effect from September 22, excluding changes to tobacco and tobacco-related items.

Healthcare Relief: Insurance Policies Exempted, Rates On Equipment Slashed

In a move expected to boost insurance penetration across the country, all individual life and health insurance policies will be completely exempt from GST. This includes family floater plans and policies specifically designed for senior citizens. 

Further, healthcare equipment including surgical instruments, dental apparatus, diagnostic kits, thermometer, medical grade oxygen and common medical supplies like glucometers and bandages will benefit from reduced GST of 5 per cent, previously taxed at 12 and 18 per cent.

Essential Items See Significant Tax Cuts

The reforms deliver substantial relief on everyday household items. Essential food products including ultra-high temperature milk, paneer, chapati, roti, and parotta will now attract zero GST.

Daily-use items such as toiletries, bicycles, soaps, shampoos, and kitchenware will be taxed at just 5 per cent, down from the current 12 per cent or 18 per cent. Popular packaged foods including noodles, chocolates, sauces, and coffee will also benefit from the reduced 5 per cent rate.

The details are as follows:

Basic food items: Malt, starches, pasta, cornflakes, biscuits, chocolates, and cocoa products now taxed at 5 per cent

Premium nuts and dry fruits: Almonds, pistachios, hazelnuts, cashews, and dates see rates drop from 12 per cent to 5 per cent

Sugar products: Refined sugar, syrups, toffees, and candy moved to 5 per cent GST bracket

Packaged food essentials: Vegetable oils, edible spreads, meat and fish products, and malt-extract foods reduced to 5 per cent

Ready-to-eat snacks: Bhujia, mixtures, and similar items cut from 18 per cent to 5 per cent

Beverages: Mineral and unflavoured aerated water rates slashed from 18 per cent to 5 per cent

Major Healthcare Sector Benefits

The pharmaceutical sector receives significant support with 33 life-saving drugs used for treating cancer, rare diseases, and chronic conditions becoming completely GST-free. Most other medicines will see their tax burden reduced to 5 per cent from the current 12 per cent.

Medical equipment and supplies including anaesthetics, iodine, medical oxygen, diagnostic kits, bandages, glucometers, spectacles, surgical instruments, and X-ray apparatus will also benefit from reduced GST rates.

Infrastructure and Manufacturing Boost

Key infrastructure materials and vehicles will see substantial tax reductions. Cement, a critical construction input, will be taxed at 18 per cent instead of the current 28 per cent.

Coal and lignite however saw a substantial tax increase, with GST rising from 5 per cent to 18 per cent.

The automotive sector receives relief with small cars, motorcycles up to 350cc, buses, trucks, and ambulances moving from 28 per cent to 18 per cent GST. This is expected to make transportation more affordable and support the logistics sector.

The textile industry addresses long-standing concerns with man-made fiber and yarn rates reduced to 5 per cent, resolving inverted duty structure issues that have plagued manufacturers.

Agricultural and Green Energy Support

Farmers will benefit from reduced GST on agricultural machinery including tractors, harvesters, irrigation equipment, and composting machines, all now taxed at 5 per cent.

In line with India's renewable energy goals, solar panels, wind turbines, and fuel-cell vehicles will see their GST rates drop from 12 per cent to 5 per cent, making clean energy solutions more economically viable.

No GST on kids' stationery items

Charts, crayons, erasers, exercise books, globes, maps, notebooks, pastels, pencils, and sharpeners will now attract a rate of zero per cent.

What are the items in the 18 per cent bracket now?

Items moving to the 18 per cent GST bracket include 3-wheeled vehicles, air conditioners, diesel and diesel hybrid cars (not exceeding 1500 cc & 4000 mm), dishwashing machines, monitors and projectors, motor vehicles for goods transport, motorcycles (350 cc & below), petrol and petrol hybrid/LPG/CNG cars (not exceeding 1200 cc & 4000 mm), road tractors with engine capacity above 1800 cc, and televisions above 32″ including LED and LCD TVs.

Institutional Reforms

The GST Appellate Tribunal, a long-awaited dispute resolution mechanism, will become operational by end-September and begin conducting hearings before December. The Council has set an ambitious target of clearing all backlog appeals by June 30, 2026, promising faster resolution of tax disputes.

What about popcorn though?

Salt and spice popcorn will be taxed at 5 per cent, whether sold loose or in pre-packaged form. Caramel popcorn, however, will also now attract 5 per cent rate as it falls under the sugar confectionery category.

PM praises Council

In a PMO statement, Prime Minister Narendra Modi praised the GST Council's unified support for the government's reform package. "These sweeping reforms will better our citizens' lives and promote ease of doing business across all sectors, with particular focus on small businesses and traders", he said.