GST Council 2025 Reforms Explained: Your Complete Guide to GST 2.0

The 56th GST Council meeting has delivered what leaders are calling a “historic, next-generation reform” in India’s indirect tax system. Effective from 22nd September 2025, the new GST 2.0 framework will simplify slabs, reduce costs on essentials, and raise levies on luxury and unhealthy consumption.

Senior ministers hailed it as Prime Minister Narendra Modi’s “Diwali gift” to citizens, fulfilling his Independence Day promise of bold tax reforms. Finance Minister Nirmala Sitharaman, backed by the Council, has steered the change described as transformative — relief for households and MSMEs, predictability for businesses, and a renewed push towards Viksit Bharat.

Industry bodies such as CII and PHDCCI echoed that sentiment, calling the reform a “phenomenal milestone” that will ease compliance, cut household budgets, reduce litigation, and trigger demand across sectors from agriculture to automobiles.

GST Council 2025 Reforms: Key FAQs

To clear doubts around the transition, the government released a detailed FAQ. Here are the most important clarifications for consumers and businesses:

When do the new GST rates take effect?
The revised rates on most goods and services come into force on 22nd September 2025. For specified tobacco products like cigarettes and beedis, existing rates will continue until cess-linked loans are repaid.

Are registration thresholds changing?
No. There is no change to the threshold for GST registration under the CGST Act, 2017.

What happens if goods are supplied before 22nd September but invoices are raised later?
The tax rate depends on the time of supply provisions under Section 14 of the CGST Act. Payments made before the change will follow old rates, while payments after will be taxed at the new rate.

Can input tax credit (ITC) from higher rates still be used?
Yes. Once ITC is credited into the e-ledger, it can be used to pay future GST liabilities even if the rates drop later.

What if my supplies become exempt after 22nd September?
Businesses must reverse ITC on supplies made after the exemption date, but credit can still be used for supplies made before that.

Will GST on imports also change?
Yes. The revised GST rates apply to imports as well, except where exemptions exist.

Do e-way bills need to be regenerated on 22nd September?
No. E-way bills already generated will remain valid; no fresh generation is required for goods in transit.

What Gets Cheaper

👉 Households will see direct savings on everyday goods and healthcare.

• UHT milk and plant-based milk: Now taxed at 5% (earlier up to 18%).

• All Indian breads: Now fully exempt, ending confusion over roti, paratha, porotta.

• Medicines and medical devices: Reduced to 5% for most categories.

• Agriculture machinery: GST cut from 12% to 5%.

• Bicycles and parts: Down from 12% to 5%.

• Toilet soap bars, face powders, shampoos, shaving cream: Now 5%.

• Small cars (≤1200cc petrol, ≤1500cc diesel, ≤4000mm length): Reduced from 28% to 18%.

• Two-wheelers up to 350cc, buses, trucks, ambulances: Now 18% instead of 28%.

• Renewable energy equipment: Down from 12% to 5%.

• Spectacles for vision correction: Cut to 5%.

• TVs, monitors, ACs, dishwashers: All brought down to 18%.

• Life and health insurance premiums: Individual policies exempt, reducing costs by ~15%.

What Gets Costlier

👉 Luxury buyers and unhealthy consumption face the biggest hit.

• Luxury cars, SUVs, premium motorcycles >350cc: Attract 40% GST.

• Sugary and flavored drinks, carbonated fruit beverages: Moved to 40%.

• Betting, casinos, online gaming, horse racing, IPL-style sports events: Taxed at 40%.

• Coal: Compensation cess merged into GST, keeping effective burden intact.

MSMEs and Businesses

These reforms also reshape business operations, with measures aimed at reducing friction for smaller enterprises.

• Faster MSME registration: Completed in 3 days.

• Quicker refunds: Inverted duty refunds cleared in 7 days.

• Job work in pharma, hides, and leather: Now at 5% with ITC (earlier 12%).

• Transport sector: Options for 5% without ITC or 18% with ITC on goods transport and multimodal services.

👉 These steps reduce compliance delays and ease working capital strain, particularly for startups and exporters.

Why Medicines, Devices & Agriculture Are Not Fully Exempt

One recurring question has been why medicines, medical devices, and agricultural inputs are not fully exempt. The Council explained that full exemptions would block manufacturers from claiming ITC. Without ITC, producers face higher costs, which would eventually be passed on to consumers. By keeping a 5% concessional rate, the system ensures affordability while preserving industry sustainability.

The Bigger Picture

The GST 2.0 reform is more than a tax shuffle; it is a reset of India’s economic architecture. For households, it means cheaper medicines, insurance, food, and daily-use goods. For businesses, it ensures predictability and ease. For the economy, it balances growth with revenue needs.

As Home Minister Amit Shah noted, “This historic decision will bring huge relief to the poor and middle class, while also supporting farmers, MSMEs, women, and youth.” Industry leaders share the same optimism: CII’s Chandrajit Banerjee called it a “pathbreaking reform,” while PHDCCI’s Hemant Jain hailed it as a “landmark step that stimulates demand and strengthens inclusivity.”

👉 Together, these voices underline one fact: the Next-Gen GST reform is Modi government’s boldest economic shield yet — designed to empower citizens, strengthen industry, and safeguard India’s growth story in a turbulent global trade era.