Significant “Next-Gen” GST reforms, stemming from the 56th GST Council meeting in September 2025, have streamlined tax slabs and altered rates for numerous goods and services. These changes, effective September 22, 2025, also introduce new compliance measures for businesses.
Simplified GST rate structure
The GST Council approved a new, simplified three-tier rate system.
- Essential goods and services: A merit rate of 5%.
- Most goods and services: A standard rate of 18%, down from the previous 18% and 28% slabs.
- Luxury/sin goods: A demerit rate of 40%.
- Special rates: The 0.25% rate for the gems and jewellery sector and the 3% rate for precious metals like gold remain.
- Status of tobacco products: The 40% demerit rate will eventually apply to tobacco products. However, these will remain at the existing rates (28% plus cess) until compensation loan liabilities to the states are cleared.
New rates for goods and services
The rate rationalization, effective September 22, 2025, made many items cheaper.
Everyday essentials and services (5% or NIL):
- Daily items: Soaps, toothpaste, shampoo, and biscuits were reduced from 12–18%.
- Medical supplies: 33 life-saving drugs and diagnostic kits became tax-exempt (Nil), while others were reduced to 5%.
- Healthcare services: Individual health and life insurance premiums are now fully exempt from GST, previously at 18%.
- Basic food: Ultra-High Temperature (UHT) milk, pre-packaged paneer, and Indian breads are now Nil GST.
- Other services: Gyms, salons, and yoga services now fall under the 5% rate.
Consumer durables and vehicles (18%):
- Home appliances: Air conditioners, televisions, and dishwashers were moved from the 28% slab.
- Small cars and two-wheelers: Cars with engines up to 1200cc (petrol) or 1500cc (diesel) and two-wheelers up to 350cc were reduced from 28%.
- Cement: The rate was cut from 28% to 18%.
Luxury and sin goods (40%):
- Luxury vehicles and motorcycles over 350cc now attract a higher tax.
- Aerated beverages and online gaming are also taxed at the new 40% rate.
Key compliance changes
30-day e-invoice reporting: Effective April 1, 2025, businesses with an Annual Aggregate Turnover (AATO) of ₹10 crore or more must report B2B e-invoices to the Invoice Registration Portal (IRP) within 30 days of the invoice date.
Mandatory e-invoicing and e-way bill security (effective from 2025): Multi-Factor Authentication (MFA) is being rolled out in phases for all taxpayers to access the GST portal.
Sequential GSTR-7 filing: Since November 1, 2024, Tax Deductors must file their GSTR-7 returns in chronological order. Nil returns are mandatory for periods with no deductions.
Invoice Management System (IMS): From October 1, 2024, taxpayers can use the IMS to validate supplier invoices, simplifying the Input Tax Credit (ITC) process.
New ISD rule (effective April 1, 2025): Companies with multiple GST registrations under the same PAN must now use the Input Service Distributor (ISD) mechanism to distribute common input services.