Major Reforms in GST Council Meeting

GST Council Meeting Summary (2025)

Key Reforms Approved:

• Transition to a two-slab GST structure:
  • 5% and 18%
  • Demerit rate of 40% for super luxury, sin, and demerit goods (e.g., tobacco).

Objectives of the Reforms:

• Lower tax burden on the common populace.
• Streamline working capital and enhance ease of doing business.
• Automate GST refund and registration processes.

Effective Date: Changes to be implemented from September 22, 2025.

Participating Entities:

• Meeting chaired by Union Finance Minister Nirmala Sitharaman.
• Attendees included ministers from 31 states and Union Territories.

Highlights of GST Rate Changes:

1. Reduction in GST on common-use items:
   • From 12% to 5%: Medical grade oxygen, gauze, and various food items (this includes packaged fruit juices, butter).
   • Nil GST on certain educational items (e.g., erasers) and food items like ultra-high-temperature milk, chhena/paneer.
2. Consumer goods:
   • Hair oil, soap, and other personal care items cut to 5% from either 12% or 18%.
   • White goods (air conditioners, refrigerators) reduced from 28% to 18%.
3. Automotive sector:
   • Small cars (petrol 1200 cc, diesel 1500 cc) taxed at 18%.
   • Motorcycles under 350 cc also taxed at 18%; larger vehicles at 40%.
   • Electric vehicles remain at 5%.

Special Exemptions:

• Life and health insurance policies exempt from GST.
• Services like gyms and salons lowered to GST of 5% from 18%.

Economic Implications:

• Estimated net revenue implication of Rs 48,000 crore based on 2023-24 consumption data.
• Consensus reached despite concerns over a potential revenue loss estimated between Rs 80,000 crore to Rs 1.5 lakh crore.

Challenges Addressed:

• Inverted duty structure corrections applied in textile and fertilizer sectors:
  • Manmade fibers' GST reduced from 18% to 5%.
  • Inputs in the fertilizer sector reduced to 5% from 18%: sulphuric acid, nitric acid, and ammonia.

Comments by Officials:

• Sitharaman emphasized the focus was on the common man and the simplification of compliance.
• CII's Reaction: The Confederation of Indian Industry welcomed the reforms as they enable simplification, compliance efficiency, improved predictability, and immediate relief for families.

Constitutional References:

• While specific Articles were not mentioned, the framework for GST falls under the Goods and Services Tax Act, 2017, which allows Parliament and States to levy CGST/SGST and compensate for revenue losses.

Significance:

• The reforms are expected to enhance the ease of living, especially benefiting farmers, MSMEs, and middle-class families.
• Aimed at fortifying economic recovery post-pandemic and addressing issues of tax disparities and compliance burden.

This summary encompasses the GST Council meeting's significant outcomes relevant to exam preparation, focusing on legislative changes, economic implications, and the operational framework under which these reforms were discussed and ratified.