GST Council Approves Landmark Rate Cuts, Exempts Insurance; Check New Slabs Under Two-Rate Structure
Finance Minister Nirmala Sitharaman chairs the 56th meeting of the GST Council in New Delhi on Wednesday.
New Delhi, September 4: The 56th meeting of the GST Council, chaired by Finance Minister Nirmala Sitharaman, on Wednesday approved sweeping reforms aimed at easing the burden on households, supporting labour-intensive industries, and boosting key sectors of the economy.
The reforms follow Prime Minister Narendra Modi’s Independence Day announcement of “next-generation GST” from the Red Fort and mark a strategic shift towards a simpler, citizen-centric tax system.
Major Tax Reliefs for Citizens
The Council announced full exemption of GST on all individual life and health insurance policies, including reinsurance, to make coverage more affordable and expand access. Essential food items also received relief:
- GST on UHT milk, paneer, and all types of Indian breads has been cut to zero.
- Packaged foods including namkeens, sauces, pasta, noodles, chocolates, coffee, and ghee will now attract just 5%, down from 12% or 18%.
- Hair oil, soap bars, shampoos, toothbrushes, toothpaste, bicycles, and household goods will also move to the 5% bracket.
Two-Rate Structure
The Council approved the rationalisation of GST into a simplified two-rate system:
- Standard Rate: 18%
- Merit Rate: 5%
A de-merit rate of 40% will remain for select goods such as pan masala and tobacco.
Boost to Health & Agriculture
- 33 life-saving drugs will move from 12% to nil tax, while three cancer and rare disease drugs will shift from 5% to nil.
- All other medicines will be taxed at 5%.
- Medical devices, kits, bandages, and surgical supplies will see rates drop to 5%.
- Agricultural machinery, tractors, and composting equipment will also benefit from a cut from 12% to 5%.
Industry & Infrastructure Gains
- Cement, small cars, motorcycles (≤350cc), buses, trucks, and ambulances will move from 28% to 18%.
- Uniform 18% rate for all auto parts.
- Handicrafts, marble, granite, and leather goods reduced to 5%.
- Renewable energy devices will now attract 5% GST.
- Correction of inverted duty structures in textiles and fertilizers, with fibres, yarns, sulphuric acid, nitric acid, and ammonia moved to 5%.
Institutional Reforms
The Council also cleared the way for the Goods and Services Tax Appellate Tribunal (GSTAT) to begin accepting appeals by September-end and commence hearings by December 2025. The Tribunal’s Principal Bench will double as the National Appellate Authority for Advance Ruling, offering greater consistency and certainty to taxpayers.
Most of the new rates will take effect from September 22, 2025. However, pan masala, gutkha, cigarettes, and similar products will continue under current rates until compensation cess-related loan obligations are cleared.
GST Rate Rationalisation: Before vs After
| Category / Item | Earlier GST Rate | New GST Rate |
|---|---|---|
| Insurance | 18% | 0% (Life & Health Insurance, incl. reinsurance) |
| Daily Essentials | 12% / 18% | 5% (Hair oil, soaps, shampoos, toothbrushes, toothpaste, bicycles, kitchenware, etc.) |
| Food Items | 12% / 18% | 5% (Packaged namkeens, sauces, pasta, noodles, chocolates, coffee, preserved meat, ghee, butter, cornflakes) |
| Milk & Dairy | 5% | 0% (UHT milk, paneer, pre-packaged labelled paneer/chhena) |
| Indian Breads | 5% | 0% (Chapati, roti, paratha, parotta, etc.) |
| Healthcare – Medicines | 12% | 0% (33 life-saving drugs) |
| 5% | 0% (3 rare disease/cancer drugs) | |
| 12% | 5% (All other medicines) | |
| Healthcare – Devices | 12% / 18% | 5% (Medical apparatus, surgical devices, diagnostic kits, glucometers, bandages, gauze, reagents, etc.) |
| Agricultural Machinery | 12% | 5% (Tractors, soil cultivation, harvesting, threshing, composting machinery) |
| Labour-Intensive Goods | 12% | 5% (Handicrafts, marble & granite blocks, leather goods) |
| Cement | 28% | 18% |
| Autos | 28% | 18% (Small cars, motorcycles ≤350cc, buses, trucks, ambulances, three-wheelers) |
| Auto Parts | 28% / 18% (varied) | 18% uniform |
| Renewable Energy Devices | 12% | 5% |
| Textiles (Manmade Fibre) | 18% | 5% |
| Textiles (Manmade Yarn) | 12% | 5% |
| Fertiliser Inputs | 18% | 5% (Sulphuric acid, nitric acid, ammonia) |
| Hotel Accommodation (≤₹7,500/day) | 12% | 5% |
| Beauty & Wellness Services | 18% | 5% (Gyms, salons, barbers, yoga centres, etc.) |
| Sin Goods (Pan Masala, Tobacco, Gutkha, Cigarettes, Zarda, etc.) | Transaction Value based, 28% + cess | 40% (Retail Sale Price-based valuation) |
