The BRICS TimesFrom September 22, 2025, India will implement major reforms in the GST system, called GST 2.0. The new structure introduces two main tax slabs—5% and 18%, while harmful goods like alcohol and tobacco will attract 40% tax.
Starting September 22, 2025, a significant reform in India’s tax system will take effect with the revised Goods and Services Tax (GST). The updated structure, also known as GST 2.0, introduces two primary slabs of 5% and 18%, while alcohol and tobacco products will fall under the 40% slab. Finance Minister Nirmala Sitharaman chaired the GST Council meeting in September where these changes were finalized. The government aims to simplify tax rates, encourage consumer spending, and bring more clarity in taxation. Despite these intentions, many people still have questions about how the new system will affect them. Here is a simplified explanation of GST 2.0 and its rules.
What is GST?
GST, or Goods and Services Tax, is a unified indirect tax applied to goods and services across India. It replaced older levies like excise duty, VAT, and service tax, creating a uniform taxation system nationwide.
When will the revised GST rates apply?
The government has confirmed that the updated GST rates will be enforced from September 22, 2025, based on GST Council recommendations.
What changes will GST bring from September 22?
Many goods and services will see altered tax rates from this date. The goal is to create simple, transparent, and uniform rates. This will benefit both businesses and consumers.
Will registration rules change?
No changes have been made to GST registration rules or threshold limits. Only the tax rates are revised.
How will information about new rates be released?
The government will issue official notifications on revised rates, which will be published on the CBIC website.
Which rate applies if supply and invoicing differ?
The rate depends on the supply date. If supply and payment occur before September 22, old rates apply. Otherwise, the new rates will be used.
What about advance payments?
If advance payment is received before September 22, the old rate applies. Advances received on or after September 22 will follow new rates.
Do e-way bills need cancellation and reissue?
No. Any e-way bills generated before the rate change remain valid until their expiry.
What about stock available before the new rates?
GST is charged at the time of supply. Therefore, all supplies made after September 22 will attract the new rates, regardless of when stock was purchased.
What happens to Input Tax Credit (ITC) from earlier purchases?
ITC claimed on earlier purchases will remain valid and can still be used. The rate changes will not affect previous ITC.
Can ITC be claimed on exempted supplies after September 22?
No. Supplies exempt from September 22 will require reversal of ITC, even if ITC was claimed earlier.
Is ITC refund possible under inverted duty structure?
Refunds are only available in cases of permanent rate differences. Temporary rate changes will not qualify for ITC refund.
Which life insurance policies get exemption?
Individual policies like term plans, endowment policies, and ULIPs are exempt. Their reinsurance is also included in exemptions.
Are health insurance policies exempt too?
Yes. Private health insurance such as family floater and senior citizen plans are GST-free. Their reinsurance is also exempt.
What about input services of insurance companies?
Only reinsurance services are exempt. Commission and brokerage services will still attract tax, and ITC cannot be claimed on them.
What about passenger transport services?
Road passenger transport is taxed at 5% without ITC, or operators may choose 18% with ITC. Air travel is taxed at 5% for economy class and 18% for other classes.
What rate applies to multimodal goods transport?
If air transport is not involved, GST is 5% with ITC capped at 5%. If air transport is included, GST is 18% with full ITC allowed.
Who pays tax for local deliveries via e-commerce?
If the provider is unregistered, the e-commerce operator will pay GST. If registered, the supplier will handle tax payments.
What is the GST rate on local delivery services?
Local delivery services attract 18% GST. Registered suppliers pay directly, while e-commerce operators cover unregistered providers.
Are e-commerce deliveries classified as GTA services?
No. E-commerce delivery is categorized separately and not as a Goods Transport Agency service.
Should medicines with old MRP be recalled?
No recalls are needed. Manufacturers only need to release new price lists for the market.
Why not exempt medicines from GST entirely?
A full exemption would prevent manufacturers from claiming ITC, raising costs and burdening consumers. Medicines remain at a concessional 5% rate.
Why is farm machinery not fully exempt?
A full exemption would raise production costs as ITC would be lost. To balance affordability for farmers and producers, concessional rates are applied.
Why is GST still applied on raw cotton?
Cotton is taxed under reverse charge, meaning farmers do not directly pay GST. This system helps maintain ITC for industries and keeps prices stable.
What about geotextiles and agro textiles?
These are treated as textiles, not plastics. Some confusion exists, but GST refunds are processed quickly to support the industry.
What about goods rented without an operator?
The tax rate is the same as the applicable GST on the goods. For example, car rentals without drivers attract the same GST as cars.
Do new GST rates apply to imports too?
Yes. All imported goods will follow the revised rates from September 22 unless an exemption applies.
What about UHT milk and plant-based milk?
UHT milk remains exempt. Plant-based drinks like soy or almond milk will be taxed at 5%.
Why was GST reduced on face powder and shampoo?
These are common household goods. The rate cut will simplify taxation and give relief to consumers, irrespective of brand.
Why is refund restricted on fake zari?
The GST Council decided to block refunds on imitation zari made from metallized plastic films. However, other plastic or rubber-based fabrics remain eligible for refunds.
