GST Council Slashes Rates to Two Slabs From Sep 22; Autos, Insurance, Healthcare Among Biggest Beneficiaries
By Shishta Dutta | Published at: Sep 4, 2025 03:34 PM IST
New Delhi, Thursday, September 4, 2025: Government of India’s GST Council – Key FAQs and Implementation Timelines
India’s 56th GST Council decisions take effect on September 22, 2025, reducing the regime to two essential slabs of 5% and 18%, with a special rate of 40% for specific items. New FAQs remove ambiguity on effective dates, time-of-supply treatment, utilization of input tax credit, and industry-wise rate implications, facilitating businesses in transition and compliance.
Effective Date and Compliance
The new rates are effective from September 22, 2025 for goods and services, other than tobacco products where the current structure prevails until a standalone notification. Time-of-supply provisions under Section 14 of the CGST Act cover invoicing across the rate-change line. Available, legitimately claimed ITC in e-credit ledgers can be utilized against output tax liabilities, but ITC has to be reversed if the outward supply becomes exempt post-September 22.
Big Winners: Consumers, Autos, Healthcare, Renewables
Before vs After: Representative Rate Changes
| Category | Previous GST | New GST | Notes |
|---|---|---|---|
| Small cars (≤1200 cc petrol/LPG/CNG, ≤1500 cc diesel; length ≤4000 mm) | 28% | 18% | Uniform 18% |
| Mid and large cars; UVs/SUVs/MUVs/MPVs/XUVs meeting spec | 28% + cess (effective ~45–50%) | 40% | Cess merged into GST; no additional cess |
| Motorcycles ≤350 cc | 28% | 18% | 18% includes exactly 350 cc |
| Motorcycles >350 cc | 28% + cess | 40% | Special rate |
| 3-wheelers (HSN 8703) | 28% | 18% | Reduced |
| Buses (HSN 8702, ≥10 persons) | 28% | 18% | Reduced |
| Goods vehicles (HSN 8704) | 28% | 18% | Reduced |
| UHT milk | 5% | 0% | Parity with other dairy milk |
| Plant-based milk drinks and soya milk drinks | 18% / 12% | 5% | Reduced |
| Agricultural machinery (sprinklers, drip, harvesters, composters etc.) | 12% | 5% | Relief with ITC continuity rationale |
| Medical devices (most) | Higher earlier | 5% | Lower healthcare costs; refunds for inversion available |
| Renewable energy equipment/devices | 12% | 5% | To promote clean energy; inversion refunds apply |
| Bicycles and parts | 12% | 5% | Mass-market relief |
| Air conditioners, dishwashers | 28% | 18% | Reduced |
| TVs and monitors (all sizes) | 18% / 28% | 18% | Uniform rate |
| Coal | 5% + cess | Merged into GST | No net extra burden |
All items and definitions as per the Council’s clarified schedules and FAQs.
Services: Insurance, Transport, Job Work
| Service | Previous GST | New GST | Notes |
|---|---|---|---|
| Individual life insurance (term, ULIP, endowment) | 18% | Exempt | Reinsurance also covered |
| Individual health insurance (including family floater, senior citizen) | 18% | Exempt | Reinsurance also covered |
| Passenger transport (general) | 18% typical | 5% without ITC or option for 18% with ITC | Dual-rate option for providers, except air travel |
| Passenger air travel | Existing | Economy 5%, non-economy 18% | No dual option |
| Goods transport by GTA | Existing dual | 5% without ITC or 18% with ITC | Option continues |
| Container train operator (CTO) | 12% earlier | 5% without ITC or 18% with ITC | Option introduced |
| Multimodal goods transport | Existing | 5% with restricted ITC if no air leg; else 18% with ITC | Clarified |
| Job work in pharma; hides/skins/leather (Ch. 41) | 12% | 5% with ITC | Residuary job work at 18% |
| Beauty and physical well-being services (salons, gyms, yoga) | 18% | 5% without ITC | Mass-use relief |
| Works contracts for offshore oil and gas E&P | 18% | 18% | Confirmed at standard rate |
| Actionable claims: betting, casinos, gambling, horse racing, lottery, online money gaming | Varied | 40% | Special rate |
| Admission to sporting events like IPL | Varied | 40% | Recognised sporting events unchanged at 18% or exempt ≤₹500 tickets |
Operational Clarifications Businesses Asked About
- Stocks and e-way bills: Goods supplied on or after September 22 attract new rates. E-way bills already in transit remain valid; no mandatory cancellation or regeneration.
- ITC and refunds: Duly availed ITC stays usable against output liabilities. Where supplies become exempt post-change, ITC reversal applies for those supplies. Inverted duty refunds remain guided by existing circulars; same input and output with different rates over time does not qualify under Section 54(3) proviso (ii).
- Imports: IGST aligns to notified GST rates unless separately exempted.
The Council emphasises preserving the ITC chain to avoid cost build-up for manufacturers and service providers. Full exemptions would force ITC reversals, raise effective costs, and potentially lift consumer prices, particularly in sectors like agriculture machinery, medicines, and textiles. Where inversions deepen, refunds of accumulated ITC are available, with process reforms to expedite sanction.
What Businesses Should Do Now?
- Map SKUs and services to revised schedules for correct pricing from September 22.
- Update ERP and invoicing for Section 14 time-of-supply situations; classify pre- and post-change transactions.
- Go through contract clauses again for tax incidence changes and optionality in transport services.
- Plan ITC reversals only in supplies becoming exempt after the effective date.
- Prepare documentation for refunds where inverted duty structures exist.
Quick Reference: Auto and Mobility Snapshot
Small cars, under the new format, will now attract 18% GST, which will bring them to near mass-market affordability. Three-wheelers, buses seating ten or more people, goods carriers, and motorcycles up to 350 cc will also attract the same 18% rate.
On the other hand, the upper 40% slab has been left for mid and large size cars, defined utility vehicles (UVs), and bikes of more than 350 cc, retaining the premium and luxury segment under intense taxation.
Strategic Take
Two-slab structure with focused 40% on targeted categories normalizes consumer durables and mobility segments at 18%, brings relief in healthcare and renewables at 5%, and streamlines compliance. Simplified Transport Services options and standardized treatment for job work limit cascading while ensuring revenue balance through ITC discipline and special-rate consolidation.
This report is prepared for Thursday, September 4, 2025, IST, based solely on the officially released FAQs and clarifications of the 56th GST Council decisions.
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