56th GST Council Meeting Alert

India Tax Update

The Ministry of Finance issued a press release containing the recommendations of the 56^th GST Council meeting. This was a momentous occasion covering several GST rate rationalisation measures and trade reforms.

Briefly, the GST Council has recommended the following simplified rate structure, with the erstwhile 12% for select items proposed to be eliminated:

5% merit rate for essentials
18% standard rate
40% demerit rate for sin or luxury goods

These measures have been recommended across multiple sectors – especially essential items, life and health insurance, labour-intensive industries, agriculture, healthcare, and transportation – with the intent to boost affordability and facilitate ease of doing business.

The CBIC has also issued Frequently Asked Questions (‘FAQs’) to clarify potential queries, both sectoral and general. A key clarification in the FAQs is that compensation cess will be discontinued for all goods that would attract the 40% rate once it becomes effective.

Key recommendations are summarised below:

Key Rate Changes in Services (proposed to be effective from 22 September 2025)

Sector	Description	Original rate	Proposed rate
Insurance	All individual health insurance policies (including family floater policies and policies for senior citizens) and reinsurance thereof	18%	Nil
	All individual life insurance policies – whether term life, ULIP, or endowment policies – and reinsurance thereof	18%	Nil
	Third-party insurance services of “goods carriage”	12%	5% with input tax credit (‘ITC’)
Passenger Transport	Supply of air transport of passengers other than in economy class	12% with ITC	18% with ITC
	Supply of passenger transport by any motor vehicle, where the cost of fuel is included in consideration OR Renting of any motor vehicle (with operator) designed to carry passengers, where the cost of fuel is included in consideration	5% with ITC of input services (in the same line of business)	5% with ITC of input services (in the same line of business)
		12% with ITC	18% with ITC
Goods Transport	Supply of transport of goods in containers by rail, by any person other than Indian Railways	12% with ITC	5% without ITC
		12% with ITC	18% with ITC
	Supply of transportation of natural gas, petroleum crude, motor spirit, high-speed diesel or aviation turbine fuel (ATF) through pipeline	5% without ITC	5% without ITC
		12% with ITC	18% with ITC
	Supply of Transport of goods by goods transport agency (GTA)	5% without ITC (reverse charge or forward charge)	5% without ITC(reverse charge or forward charge)
		12% with ITC	18% with ITC
	Supply of multimodal transport of goods within India	12% with ITC	5%, where no leg of transport is by air, with restricted ITC (i.e., 5% of input services of goods transportation)
	Supply of multimodal transport of goods within India	12% with ITC	18% with ITC
	Supply of renting of goods carriages (with operator), where fuel cost is included in consideration	12% with ITC	5% with ITC of input services (in the same line of business)
		12% with ITC	18% with ITC
Entertainment	Admission to casinos or race clubs, or any place having casinos or race clubs, or sporting events such as the IPL	28% with ITC	40% with ITC
	Services by a race club for licensing bookmakers in such club
	Specified Actionable Claims (betting, casinos, gambling, horse racing, lottery, online money gaming) defined as goods (Corresponding changes in the lottery valuation rules are also being carried out)
Leasing	Leasing or rental services, without operator, of goods	28% with ITC	40% with ITC
Construction	Composite supply of specified works contract and associated services	12% with ITC	18% with ITC

Key Rate Changes in Goods (proposed to be effective from 22 September 2025, except for pan masala/tobacco related products, which will take effect from a date to be notified)

Sector	Description	Original rate	Proposed rate
Automotive or Transportation	Small cars; motorcycles with engine capacity up to 350 cc; and three wheelers, as specified	28%	18%
	Buses, trucks and ambulances as specified
	Automotive parts as specified
	Luxury motor cars motorcycles with engine capacity exceeding 350 cc,	28%	40%
	Aircraft for personal use, yachts, and other vessels for pleasure or sport	28%	40%
Food	All goods under chapter heading 2202 10 (including aerated waters), containing added sugar or other sweetening matter, or flavouring	28%	40%
	Caffeinated beverages, specified carbonated beverages	28%	40%
	Other non-alcoholic beverages	18%	40%
	Pan masala and specified tobacco products	28%	40%
	Specified cocoa products and chocolates	18%	5%
	Pastry, cakes, biscuits and other bakery wares, whether or not containing cocoa; communion wafers; empty cachets of a kind suitable for pharmaceutical use; sealing wafers; rice paper; and similar products
	Ice cream and other edible ice, whether or not containing cocoa
	All goods under chapter heading 1904, i.e., corn flakes, bulgar wheat, and prepared foods obtained from cereal flakes
	Specified sugars/sugar-confectionery under chapter headings 1702/1704
	Namkeens, bhujia, mixtures, chabena, and similar edible preparations ready for consumption (other than roasted gram), pre-packaged and labelled	12%	5%
	Condensed milk, butter, dairy spreads, other fats/oils derived from milk, cheese
	Specified nuts, fruits and specified nuts or fruit products
	Specified animal or microbial fats/oils/lard
	Specified meat and seafood products
	Certain vegetables, mushrooms and truffle preserved or prepared as specified
	Sugar boiled confectionary under Chapter 1704
	Pasta, whether or not cooked or stuffed (with meat or other substances) or otherwise prepared, such as spaghetti, macaroni, noodles, lasagne, gnocchi, ravioli, cannelloni; couscous, whether or not prepared
	Roasted chicory and other roasted coffee substitutes, and extracts, essences and concentrates thereof
	All goods under chapter heading 2103, including sauces and preparations therefor, mixed condiments and mixed seasonings; mustard flour and meal and prepared mustard, curry paste, mayonnaise and salad dressings
	Khakhra, pizza bread, chapathi or roti, paratha, parotta, and other Indian breads, by any name called	5% or 18%	Nil
Consumer electronics	Specified air-conditioning machines, dishwashing machines and television sets	28%	18%
Renewable energy	Specified renewable energy devices and parts for their manufacture such as solar power generators, wind mills, Wind Operated Electricity Generator (WOEG), Ocean waves/tidal waves energy devices/plants amongst others	12%	5%
Renewable energy	Fuel Cell Motor Vehicles including hydrogen vehicles based on fuel cell technology	12%	5%
Healthcare	Specified life-saving drugs and medicines	12% or 5%	Nil
	Apparatus for medical, surgical, dental, or veterinary usage, or for physical or chemical analysis	12% or 18%	5%
	Specified medical equipment and devices, such as wadding, gauze, bandages, diagnostic kits and reagents, blood-glucose-monitoring system (glucometers)	12% or 18%	5%
Textile	Specified man-made fibres, yarns and textile products	12% or 18%	5%
Agriculture	Specified machinery/equipment used for agriculture, including specified tractors and tractor spares	12% or 18%	5%
Agriculture	Specified fertilisers	12% or 18%	5%
Essentials for the common man	Specified products: hair oil, toilet-soap bars, shampoos, toothbrushes, toothpaste, bicycles, tableware, kitchenware, other household articles	12% or 18%	5%

Some other sectors/goods for which rate reduction has been recommended include cement, leather, wood, and handicrafts, as specified.

Other Key Recommendations

Intermediary Services

Proposal to amend the place of supply for ‘intermediary services’ from the location of the service provider to the location of the service recipient by omitting clause (b) of section 13(8) of IGST Act 2017. This is expected to be a major welcome development for intermediary services providers who may now be able to claim zero-rated or export benefits on services to offshore customers.

Local Delivery Services

Proposal to notify the e-commerce operator as the person liable to pay GST (under Section 9(5) of the CGST Act) on local-delivery services supplied through it, where the supplier is not liable for registration under the GST law.
It is also proposed that the above services be excluded from the scope of GTA services

Operationalisation of the Goods and Services Tax Appellate Tribunal (GSTAT)

The GSTAT is to be made operational for accepting appeals before the end of September and to commence the hearings before the end of December 2025.
A proposed date of 30 June 2026 has been recommended as the limitation period for filing backlog appeals.
The Principal Bench of the GSTAT will also serve as the National Appellate Authority for Advance Rulings.

Post-Sale Discount

Proposal to omit the requirement to (i) establish that the discount is provided under an agreement entered into before or at the time of supply and (ii) specifically link the discount to relevant invoices for the supplier to be able to claim deduction
Proposal to provide that discount be granted by issuaning of credit note, and to make corresponding amendments to provide for reversal of the related ITC
A circular is to be issued to clarify issues surrounding post-sale discount, namely: (i) non-reversal of I TC on account of post-sale discounts provided through financial/commercial credit notes; (ii) treatment of post-sale discounts provided by a manufacturer to adealer as additional consideration in the transaction between the dealer and the end-customer (iii) treatment of post-sale discounts as consideration in lieu of promotional activities performed by the dealer
It is proposed to rescind Circular No.212/6/2024-GST dated 26^th June 2024, which provided a mechanism to ensure compliance with the conditions to claim deduction of post-sale discounts under Section 15

Provisional Refund (proposed to be operationalised with effect from 1 November 2025)

Proposal to sanction, on a provisional basis and based on risk assessment of the claimant, a 90% refund pertaining to zero-rated supplies of goods or services or both (i.e. exports or supplies to a Special Economic Zone (SEZ) developer/unit for authorised operations)
Proposal to sanction, on a provisional basis and based on risk-assessment of the claimant, a 90% refund pertaining to inverted-duty-structure cases

Other Proposals

Amendment to the CGST Act to provide for GST refunds in respect of low-value export consignments
Simplified GST registration scheme for small and low-risk businesses whose monthly output-tax liability to registered persons does not exceed INR 2.5 lacs.
Simplified registration scheme for small suppliers who supply through e-commerce operators across multiple states and face challenges in maintaining a principal place of business in each state, as currently required under the GST framework
Proposal to levy GST on retail sale price (RSP) value rather than to the transaction value for pan masala, cigarettes, gutkha, chewing tobacco, zarda, scented tobacco and unmanufactured tobacco.

Notes:

The press release sets out the GST Council’s recommendations, which are yet to be formalised via issuance of notifications/amendments to the law.
Applicable chapter/tariff headings have not been specified in this update and should be separately verified.

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