56th GST Council Meeting: Changes in GST Rates of Goods and Services

56th GST Council Meeting held on 3rd September, 2025 under the chairmanship of Hon’ble Union Finance and Corporate Affairs Minister. The GST Council meeting presented a “Next Generation GST Reforms” to enhance the quality of life of every citizen. The Council has recommended rationalisation of the 4-tiered tax rate structure into a citizen-friendly “Simple Tax”. The GST shall be charged on a standard rate of 18% and a merit rate of 5% with an exceptional rate of 40% on certain luxury and sin goods. 

The Recommendations of the GST Council included:

1. Changes in GST rates of Goods and Services;
2. Various initiatives aimed at facilitating trade

The changes in GST Rates have brought joy among the common man as many daily used goods and services will become more economical.

This article discusses the changes in GST rates recommended by the GST council and discusses the consequential FAQS:

1. Changes in GST rates

• The existing GST Tax rate structure is multi-tiered, i.e., 28%, 18%, 12%, 5%, Cess, etc. This often causes classification disputes and compliance complexities, and also is a reason for disappointment among the common man since goods of daily need, such as cars, ACs, Cement, etc, are put in higher tax slabs.
• The new regime streamlines the structure into two primary rates: a standard rate of 18% and a merit rate of 5%. 
• Additionally, a de-merit rate of 40% will apply to select luxury and sin goods.

2. Effective date of Applicability of amended GST Rates

• As per the GST Council meeting recommendations, the amended rate shall become effective from 22nd September, 2025. However, the final date of applicability can be determined post-issuance of notifications

3. Removal of Compensation Cess:

• The Compensation cess is presently applicable on certain luxury or sin goods such as cars, Tobacco, Pan masala, etc.
• The GST Council has recommended removing compensation cess on most goods, such as Cars.
• However, it will continue to apply to pan masala, tobacco, and related products.

4. Sector-wise changes in GST Rates of Goods

A few sector-wise changes in GST Rates of goods are as follows:

Sector

HSN Code 

Description

Existing Rate

Proposed Rate

Food Sector

2106

Food preparations not elsewhere specified or included

18%

5%

1905

Pizza bread

5%

NIL

0402 91 10, 0402 99 20

Condensed milk

12%

5%

2202 91 00,

2202 99

Other non-alcoholic beverages

18%

40%

Tobacco

1404 90 10

Bidi wrapper leaves (tendu)

18%

5%

2402

*Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes

28%

40%

Agriculture Sector

8414 20 20

Other hand pumps

12%

5%

8424

Sprinklers; drip irrigation system including laterals; mechanical sprayers

12%

5%

Coal

2701

Coal; briquettes, ovoids and similar solid fuels manufactured from coal

5%

18%

Renewable Energy

84, 85 or 94

Following renewable energy devices and parts for their manufacture:-

1. Bio-gas plant;
2. Solar power-based devices;
3. Solar power generator;
4. Wind mills, Wind Operated Electricity Generator (WOEG);
5. Waste to energy plants/devices;
6. Solar lantern / solar lamp;
7. Ocean waves/tidal waves energy devices/plants;
8. Photovoltaic cells are assembled in modules or made up into panels.

12%

5%

Textile Sector

5402, 5403, 5404, 5405, 5406

Synthetic filament yarns

12%

5%

5509, 5510, 5511

Yarn of manmade staple fibres

5.

12%

5%

Health Care Sector

28

Anaesthetics

12%

5%

2801 20

Iodine

12%

5%

9025

Thermometers for medical, surgical, dental or veterinary usage

18%

5%

Education

4905

Maps and hydrographic or similar charts of all kinds, including atlases, wall maps, topographical plans and globes, printed

12%

NIL

4820

Exercise book, graph book, & laboratory notebook book and notebooks

12%

NIL

Common Man Items

33061010

Tooth Paste

12%

5%

7615

Table, kitchen or other household articles of aluminium; Utensils

12%

5%

8712

Bicycles and other cycles (including delivery tricycles), not motorised

12%

5%

Consumer Electronics

8415

Air-conditioning machines, comprising a motor-driven fan and elements for changing the temperature and humidity, including those machines in which the humidity cannot be separately regulated

28%

18%

8422

Dish washing machines, household [8422 11 00] and other [8422 19 00]

28%

18%

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5. Change in GST Rates on Services:

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A Few Changes to the GST rates of services are as follows:

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HSN Code 

Description

Existing Rate

Proposed Rate

9963

Supply of “hotel accommodation” having a value of the supply of a unit of accommodation less than or equal to seven thousand five hundred rupees per unit per day or equivalent

12% with ITC

5% without ITC

9964

Supply of Air transport of passengers in other than economy class

12% with ITC

18% with ITC

9965

Supply of Transport of goods by GTA

5% without ITC(RCM/FCM)

5% without ITC(RCM/FCM)

12% with ITC

18% with ITC

9971

Supply of the Service of third-party insurance of “goods carriage”

12% with ITC

5% with ITC

Any chapter

Specified Actionable Claims (betting, casinos, gambling, horse racing, lottery, online money gaming) are defined as goods

28% with ITC

40% with ITC

9971

i) All individual health insurance, alongwith reinsurance thereof

18% with ITC

Exemption

(ii) All individual life insurance, along with reinsurance thereof

18% with ITC

Exemption

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The above shared changes in GST rates of goods and services are only illustrative. A complete list of changes in the GST rate can be accessed in press release.

6. Recommendation with respect to Compensation cess

• The Compensation cess shall continue to be levied on tobacco, pan masala, cigarettes and other tobacco-related products until the entire loan and interest liability on account of compensation cess is discharged.
• In respect of luxury goods and sin goods such as aerated drinks and luxury cars, the compensation cess will be subsumed in the GST rate itself. Therefore, the GST rates have been increased to 40%.
• On small economy cars, the levy of compensation cess will be discontinued. 

7. Frequently Asked Questions (FAQs)

a.  What are the consequences if the goods or services are supplied before the changes in GST rates come into force but the invoices were issued later?

As per Section 14 (a)(i) of CGST Act, 2017, in case the goods or services or both have been supplied before the change in rate of tax, and the invoice for the same has been issued after the change in rate of tax, then the time of supply i.e. date of liability to pay tax on such supply will be as follows:

• If the payment is received after the change in rate of tax, then time of supply shall be the date of receipt of payment or the date of issue of invoice, whichever is earlier.
• If the payment has been received before the change in rate of tax, the time of supply shall be the date of receipt of payment.

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• E.g.

Date of Payment

Date of Invoice

Time of Supply

(Date of liability to pay tax)

20th September, 2025

25th September, 2025

20th September, 2025

30th September, 2025

25th September, 2025

25th September, 2025

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b. What would be the GST rate if the payment is received in advance for supply of goods or service but supply is made or the invoice is issued after the date of change in GST rate?

As per Section 14 (b)(iii) of CGST Act, 2017, where goods or services have been supplied after the change in rate of tax, invoice has been issued after the change in rate of tax but the payment is received before the change in rate of tax, the time of supply shall be the date of issue of invoice. Therefore, time of supply for discharging GST liability shall be the date of issuance of invoice.

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Date of Payment

Date of Supply of Goods

Date of Invoice

Time of Supply

(Date of liability to pay tax)

20th September, 2025

23rd September, 2025

25th September, 2025

25th September, 2025

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c. What will happen to the ITC with respect to material purchased prior to changes in GST rates? Will ITC be available at the reduced rate?

As per Section 16(1) of CGST Act, a registered person is entitled to take ITC on his inward supplies, which he uses or intends to use in the course or furtherance of his business subject to the specified conditions.

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Therefore, the registered person shall be entitled to claim ITC of the entire tax paid on the inward supplies subject to fulfilment of other conditions applicable for claiming ITC. 

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d. Can ITC availed with respect to purchases made prior to 22nd September, 2025 at higher rate be utilised for sales made after 22nd September, 2025 at lower rate?

The input tax credit once availed in electronic credit ledger can be used for discharge of any output tax liability in terms of provisions of section 49(4) of CGST Act and rules made thereunder.

e. If outward supply becomes exempted under the new rate schedule but the registered person is already having ITC of GST paid on inward supplies received prior to 22nd September, 2025 in electronic credit ledger then whether such ITC is required to be reversed?

The ITC can be utilized to discharge outward liability for supplies of goods/services or both made till 21st September, 2025. However, for supplies made on or after 22nd September, 2025, ITC is required to be reversed as per provisions of CGST Act, 2017.

f. Whether a registered person is allowed to take refund of ITC accumulated on account of reduction in GST Rate upto the date of change in GST rates?

As per Circular No. 135/05/2020-GST dated 31.03.2020, refund of accumulated ITC in terms of clause (ii) of first proviso to section 54(3) of the CGST Act, is available where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies. 

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However, refund under Inverted duty structure shall be allowed only when the Input and output are different. However, in the given case, though GST rates are different at different points, the input and output are still the same. Therefore, the taxpayer shall not be entitled to claim refund under section 54(3)(ii) of CGST Act.

g. Whether GST at revised rate should be charged on stock in hands on the date of when rate changes come into effect?

GST is levied on supply. Therefore, on goods supplied on or after 22nd September, 2025, GST shall be charged at the new rates.

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