GST 2.0: New 18% Standard & 5% Concessional Tax Rates

In the 56th meeting of the Goods and Services Tax (GST) Council, the GST 2.0 version has been launched. Under this, the current 4-tier tax rate structure has been rationalized into a citizen-friendly ‘Simple Tax’ with a 2-rate structure of 18% standard rate and 5% concessional rate; for certain selected goods and services, a special demerit rate arrangement of 40% has been implemented.
• In the 56th meeting of the GST Council, several important changes in the GST framework were recommended with the aim of reducing the tax burden on common people. The GST Council recommended that GST rates on services will be implemented from 22 September, 2025.
• On 03 September, 2025, in the 56th meeting of the GST Council, a historic reform in India’s taxation system took place, which is being called the “next generation GST.”
• The next generation GST reform announced by Prime Minister Narendra Modi from the ramparts of the Red Fort on 15 August, 2025, represents the strategic, principled and citizen-centric development of a historic tax framework, which will improve the standard of living of every citizen.
• The current GST structure implemented on 01 July, 2017 includes four tax slabs: 5%, 12%, 18% and 28%, along with a compensation cess imposed on luxury and sin goods to compensate states for revenue loss.

Approval of major reforms
• Rationalization of the current 4-tier tax rate structure into a citizen-friendly ‘Simple Tax’ with a 2-rate structure of 18% standard rate and 5% concessional rate; a special demerit rate of 40% for certain selected goods and services.
• GST on many items of common people; such as hair oil, toilet soap bar, shampoo, toothbrush, toothpaste, bicycle, tableware, kitchenware, other household items etc. reduced from 18% or 12% to 5%.
• GST on ultra-high temperature (UHT) milk, pre-packed and labeled chhena or paneer reduced from 5% to zero; GST rate on all Indian breads (chapati, paratha, parota, etc.) will be zero.
• GST on almost all food products such as packaged snacks, bhujia, sauces, pasta, instant noodles, chocolate, coffee, preserved meat, cornflakes, butter, ghee etc. reduced from 12% or 18% to 5%.
• GST on air conditioning machines, 32-inch TVs (18% tax now on all TVs), dishwashing machines, small cars, motorcycles with capacity of 350 cc or less reduced from 28% to 18%.

GST on Agriculture Sector
• GST on agricultural items such as tractors, agricultural, horticultural or forestry machinery for soil preparation or cultivation, harvesting or threshing machinery including straw or fodder balers, grass mowers, composting machines etc. reduced from 12% to 5%.
• GST on labour-intensive items such as handicrafts, marble and travertine blocks, granite blocks and intermediate leather goods reduced from 12% to 5%.
• GST on cement reduced from 28% to 18%.

GST on Health Sector
• GST on 33 life-saving medicines and drugs reduced from 12% to zero. GST on 3 life-saving medicines and drugs used in the treatment of cancer, rare diseases and other serious chronic diseases reduced from 5% to zero.
• GST on all other medicines and drugs reduced from 12% to 5%.
• GST on various medical devices and instruments used in medical, surgical, dental or veterinary or physical or chemical analysis reduced from 18% to 5%.
• GST on various medical devices and supply equipment such as wadding gauze, bandages, diagnostic kits and reagents, blood sugar monitoring system (glucometer), medical devices etc. reduced from 12% to 5%.

GST on Automobile Sector

• GST on small cars and motorcycles with capacity of 350 cc or less reduced from 28% to 18%.
• GST on buses, trucks, ambulances etc. reduced from 28% to 18%.
• A uniform rate of 18% applied to all auto parts, regardless of their HS code. GST on three-wheelers reduced from 28% to 18%.
• Long-pending correction of inverted duty structure for the man-made textile sector, GST rate on man-made fibre reduced from 18% to 5% and on man-made yarn reduced from 12% to 5%.
• Correction of inverted duty structure in fertilizer sector, GST rate on sulphuric acid, nitric acid and ammonia reduced from 18% to 5%.

GST on Renewable energy

• GST on renewable energy devices and their manufacturing parts reduced from 12% to 5%.
• GST on “hotel accommodation” services of ₹2000 or less reduced from 12% to 5%.
• GST on beauty and physical health services used by common people, including gyms, salons, barbers, yoga centres etc. reduced from 18% to 5%.

Operation of Goods and Services Tax Appellate Tribunal (GSTAT)

• Goods and Services Tax Appellate Tribunal (GSTAT) will become operational to accept appeals before the end of September and will begin hearings before the end of December this year.
• The Council also recommended the date of 30.06.2026 as the time-limit for filing pending appeals. The Principal Bench of GSTAT will also function as the National Appellate Authority for Advance Rulings.
• These measures will significantly strengthen the institutional framework of GST by providing a strong mechanism for dispute resolution, ensuring uniformity in advance rulings and providing greater certainty to taxpayers. This will enhance trust, transparency and ease of doing business under the GST regime.

About GST Council

• The 101st Amendment Act of the year 2016 paved the way for the introduction of a new tax regime in the country, i.e. Goods and Services Tax (GST).
• This Amendment Act added a new Article 279-A in the Constitution, which gives the President the power to constitute the Goods and Services Tax Council by order.
• Accordingly, the President issued an order in the year 2016 and constituted the Goods and Services Tax Council.
 

Structure of GST Council

• Chairperson - Union Finance Minister
• Vice Chairperson - The members of the Goods and Services Tax Council from the States shall elect one among themselves as the Vice Chairperson of the Council.
• Members - Union Minister of State in charge of Revenue or Finance.

• Minister in charge of Finance or Taxation or any other Minister nominated by the State Government.
• Chairperson of the Central Board of Indirect Taxes and Customs (CBIC) is a permanent invitee (non-voting) in all proceedings of the Goods and Services Tax Council.
• Union Revenue Secretary (Department of Revenue, Ministry of Finance) acts as the ex-officio Secretary of the Goods and Services Tax Council.