GST 2.0: Relief for Hotels & Restaurants with Lower Tax, But Loss of Input Credit a Concern

However, industry executives and analysts say the overall effect could be limited as the GST Council did not extend input tax credit to restaurants on the goods and services they buy—a key industry demand.

Goods and services tax (GST) on budget and mid-priced hotel chains has also been slashed, from the previous 12% rate to 5%, but without input tax credit.

“Restaurants will have two major benefits from this,” Pranav Rungta, vice president of the National Restaurant Association of India, told Mint. “The cost of input purchases, where we don’t get input tax credit anyway, will drop by 7%. This will benefit QSRs [quick service restaurants] more as they use a lot of processed foods, which were in the 12% tax slab until now.”

Other restaurant inputs whose costs will reduce include utensils, other kitchen goods, and packaging materials, some of which will now be taxed at 5% instead of 12%. “These inputs together than can account for up to 30% of total costs for restaurants, especially casual and QSR chains. In total, topline savings for restaurants can be between 0.5-1.5%,” Rungta said.

Shares of QSR operators rose during trade today. Shares of Devyani International, which operates brands like KFC and Pizza Hut, closed 2.7% higher, while Domino’s Pizza operator Jubilant FoodWorks jumped nearly 3%. Sapphire Foods rose nearly 1%.

Restaurants have been asking for input tax credit on certain costs, including rent and commissions paid to food delivery aggregators. This has not come through.

“We pay GST even on rent (of restaurant premises) to unregistered landlords under the reverse charge mechanism,” NRAI’s Rungta explained. “This has been a major hit for restaurants since the GST Council’s decision in December last year. The issue has not been addressed.”

Hotel Pains

Mid-priced and budget hotel chains are also set to face a lower tax burden, down from 12% to 5%, for rooms priced ₹7,500 or below. For hotels in smaller cities, the drop in taxes is expected to boost demand among value-conscious travellers, as India’s domestic tourism industry thrives.

“By reducing the tax burden on mid-scale and upper mid-scale hotels, the government has unlocked new opportunities for stronger domestic travel, weekend leisure breaks, and business mobility – factors that are critical to the hospitality sector’s growth,” Nikhil Sharma, MD & COO, South Asia, at Radisson Hotel Group said in a statement. The cut in rates will make hotel stays more affordable for a large share of Indian travellers, co-founder and group CEO Rajesh Magow of online travel aggregator MakeMyTrip said.

“We anticipate this will translate into a measurable uptick in demand, particularly from domestic travellers who are price-sensitive and increasingly looking for value-driven stays,” Saurabh Gahoi, senior vice president at Ramee Group of Hotels, told Mint.

However, hotel industry executives and representative bodies are unhappy about losing the input tax credit altogether. They say it will increase the cost of expansion and operation.

“The rate on hotel accommodation priced at ₹7,500 and below from 12% to 5% may provide some relief only to the travellers,” the Hotel Association of India said in a statement. “Removal of ITC (input tax credit) may in fact prove detrimental for hotel companies operating in the segment and may act as a disincentive for much needed investment and expansion in the category; the full impact on hotel operators will depend on the effects of the ITC reduction, which experts will need to assess further.”

For larger chains and newer ones alike, the lack of input tax credit will hit margins first, potentially jeopardising any benefits from the tax cut.

“The government has done half the job and reduced the GST of hotel rooms sub ₹7500 a night but this will surely increase their overheads and impact margins of these hotels slightly,” Vikramjit Singh, founder of Alivaa Hotels, a new-age hotel brand backed by Ananta Capital told Mint.

Sanjay Sethi, MD & CEO of Chalet Hotels Ltd suggested changes to the newly announced GST tax structure. “To ensure the intent of the reform is fully realised, I would urge three corrective measures: retain the benefit of ITC for this segment, and revise the tariff threshold upward to ₹12,000, with ITC, in line with current market dynamics, and link future tariff thresholds to the Consumer Price Index (CPI), so that periodic resets are not required.”

 

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0% GST: Complete List of Tax-Free Goods & Services

The 56th GST Council meeting has rationalised India’s GST structure into two main slabs – 5% and 18%, with a Nil rate for essential goods and services,

📌 Effective Date of Nil GST Rates

  • 22nd September 2025

🥛 Essential Food Products – Now Nil Rated

HSN Code Description Earlier GST Rate New GST Rate
0401 Ultra-High Temperature (UHT) milk 5% Nil
0406 Chena or paneer, pre-packaged and labelled 5% Nil
1905 Pizza bread 5% Nil
1905 / 2106 Khakhra, chapathi or roti 5% Nil
2106 Paratha, parotta and other Indian breads (by any name called) 18% Nil

💊 Life-Saving Drugs & Medicines – Now Nil Rated

Group 1 – Earlier @5% → Nil

  • Agalsidase Beta
  • Imiglucerase
  • Eptacog alfa (activated recombinant coagulation factor VIIa)

Group 2 – Earlier @12% → Nil

  • Onasemnogene abeparvovec
  • Asciminib
  • Mepolizumab
  • Pegylated Liposomal Irinotecan
  • Daratumumab (IV & Subcutaneous)
  • Teclistamab
  • Amivantamab
  • Alectinib
  • Risdiplam
  • Obinutuzumab
  • Polatuzumab vedotin
  • Entrectinib
  • Atezolizumab
  • Spesolimab
  • Velaglucerase Alpha
  • Agalsidase Alfa
  • Rurioctocog Alpha Pegol
  • Idursulphatase
  • Alglucosidase Alfa
  • Laronidase
  • Olipudase Alfa
  • Tepotinib
  • Avelumab
  • Emicizumab
  • Belumosudil
  • Miglustat
  • Velmanase Alfa
  • Alirocumab
  • Evolocumab
  • Cystamine Bitartrate
  • CI-Inhibitor injection
  • Inclisiran

📚 Stationery & Education Items – Now Nil Rated

HSN Code Description Earlier GST Rate New GST Rate
4016 Erasers 5% Nil
4802 Uncoated paper & paperboard for notebooks 12% Nil
4820 Exercise book, graph book, laboratory notebook, notebooks 12% Nil
4905 Maps, atlases, wall maps, globes, topographical charts 12% Nil
8214 Pencil sharpeners 12% Nil
9608, 9609 Pencils, crayons, pastels, chalks (drawing/writing/tailor’s) 12% Nil

💎 Other Goods Now Nil Rated

Category Earlier GST New GST
Technical documentation in respect of goods exempted under notification No. 19/ 2019-Customs dated 06.07.2019. IGST 18% Nil
Natural cut & polished diamonds ≤ 25 cents (imported under Diamond Imprest Scheme) IGST 18% Nil
Works of art and antiques IGST 18% Nil
Flight & Target Motion Simulators (and parts) IGST 18% Nil
Parts & sub-assemblies of HACFS / IADWS IGST 18% Nil
Military transport aircraft (C-130, C-295MW) IGST 18% Nil
Deep Submergence Rescue Vessel IGST 18% Nil
Unmanned underwater vessels/platforms IGST 18% Nil
Ejection seats for fighter aircraft IGST 18% Nil
High performance batteries for drones & special equipment IGST 18% Nil
Communication devices including SDRs & accessories IGST 18% Nil
Air diving & rebreather sets, diving systems, accessories IGST 18% Nil
Sonobuoys for naval air assets IGST 18% Nil
Ship launched missiles IGST 18% Nil
Rockets >100mm calibre IGST 18% Nil
Remote Piloted Aircraft (military use) IGST 18% Nil
Parts, sub-assemblies, spares, accessories, tools, testing equipment, literature for defence weapons & aircrafts (except certain excluded arms) IGST 18% Nil

🛡️ Insurance Services – Now Nil Rated

Service Earlier GST Rate New GST Rate
All individual health insurance (including reinsurance) 18% with ITC Exempt
All individual life insurance (including reinsurance) 18% with ITC Exempt

What is the GST rate on food preparations not elsewhere specified in any of the schedules?

Food preparations not elsewhere specified will attract a GST rate of 5%.

UHT (Ultra High Temperature) milk has been exempted. Does exemption to UHT milk also cover plant-based milk?

All dairy milk, other than UHT milk, were already exempt from GST. Hence UHT milk has been exempted to provide same tax treatment to similar goods. Plant based milk drinks except soya milk drinks attracted 18% GST while soya milk drink attracted 12% GST. The GST rate on plant-based milk drinks and soya milk drinks have now been reduced to 5%.

What is the reason for revising GST rate only on specified varieties of Indian bread?

Bread was already exempt while pizza bread, roti, porotta, paratha etc attracted different rates. All Indian breads, by whatever name called have been exempted even though only few goods have been mentioned by way of illustrative example.

Why is there a different tax treatment between paneer and other cheese?

Prior to rate rationalisation, paneer sold in other than pre-packaged and labelled form already attracted nil rate. Therefore the changes have been made only in respect of paneer supplied in pre-packaged and labelled form. Paneer is an Indian cottage cheese. This is mostly produced in small scale sector. The measure is intended to promote Indian cottage cheese.

What is the reason for differential tax treatment for natural honey and artificial honey?

This is intended to promote natural honey.

Why have all medicines not been exempted from GST in general?

If drugs/ medicines are fully exempted, the manufacturers/dealers would not be able to claim input tax credit on GST paid on raw materials and will have to reverse the ITC paid on the inputs. This would increase their effective tax incidence and cost of production. This may in turn be passed on to consumers/ patients in the form of higher prices which in turn would make the measure counterproductive.

Why has the GST rate been reduced on medical devices? Will this not lead to inverted duty structure?

The measure is intended to lower the cost of healthcare and thereby benefit patients, particularly the poor. This measure does not create any new inverted duty structure as the existing structure already had inverted duty structure although this measure may deepen theinversion. However, under GST, refund of accumulated input tax credit arising on account of

inverted duty structure is available to manufacturers. GST Council has also recommended process reforms to enable expedited refunds.

Tata Motors Cuts Car Prices by up to ₹1.45 Lakh Post GST Changes: See Complete List

Tata Motors on Friday announced slashing prices of passenger vehicles up to ₹1.45 lakh from September 22, in a move that is set to benefit customers ahead of the festive season.

Tata Motors price drop: A Tata Motors logo is pictured outside the company showroom in Mumbai, India.(Reuters)

The announcement comes days after the GST council, earlier this week, reduced the tax rates for most of the goods, including vehicles.

The Mumbai-based automobile manufacturer said that it would pass on the full benefit of the recent GST reduction on cars and SUVs to customers.

The revised prices would be applicable from September 22, when the revised GST rates come into effect. While Tiago will see a reduction of up to 75,000, the price of Safari will see the biggest cut of ₹1,45,000.

Tata Motors have reduced the prices of passenger cars.
 

Tata Motors have reduced the prices of passenger cars.

The auto major said that the price of Tiago will be cheapter by ₹75,000, the Tigor by ₹80,000, and the Altroz by ₹1.10 lakh.

The Punch will see a reduction of up to ₹85,000, the Nexon by as much as ₹1.55 lakh, and the Curvv by up to ₹65,000. Meanwhile Harrier and Safari will see a price cut of up to ₹1,40,000 and 1,45,000 respectively.

The move comes after the GST Council approved limiting slabs to 5 per cent and 18 per cent from September 22, the first day of Navaratri. Under the revised GST rates, petrol, LPG and CNG vehicles of less than 1,200 cc and not more than 4,000 mm length and diesel vehicles of up to 1,500 cc and 4,000 mm length would move to the 18 per cent rate.

Shailesh Chandra, Managing Director of Tata Motors Passenger Vehicles Ltd, while making the announcement, said, “The reduction in GST on passenger vehicles, effective 22nd September 2025, is a progressive and timely decision that will make personal mobility more accessible for millions across India.”

“This will make our popular range of cars and SUVs even more accessible across segments, enabling first-time buyers and accelerating the shift towards new age mobility for a wider spectrum of customers,” he added.

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Updated GST Slabs: Complete List of Goods & Services Taxed at 5% and 18%

The Goods and Services Tax (GST) Council on Wednesday approved a new two-slab structure of 5% and 18%, bringing a major simplification to India’s indirect tax system. The new rates will take effect from September 22, replacing the earlier four-tier structure of 5%, 12%, 18% and 28%.

Customers at a grocery store, in Mumbai, Thursday, Sept. 4, 2025. The GST Council, in its meeting on Wednesday, simplified the GST from the current four slabs to a two-rate structure – 5 and 18 per cent. A special 40 per cent slab is also proposed for a select few items such as high-end cars, tobacco and cigarettes.(Representative image/PTI)

After day-long marathon meeting of the GST council in New Delhi, finance minister Nirmala Sitharaman said the reforms were carried out with a focus on the common man.

The finance minister said, “We have reduced the slabs, there shall be only two slabs, and we are also addressing issue of compensation cess, ease of living, simplifying registration, return filing, and refunds.”

“Every tax on the common man’s daily use items has gone through a rigorous review and in most cases the rates have come down drastically,” she added.

New two-slab structure

The 56th GST Council replaced the existing four-rate system to a simplified two-slab structure of 5% and 18%, with the exception of cigarettes, chewing tobacco and pan masala, which will remain under the higher category of 40%.

 

Under the revised structure, most personal-use and household items, including air conditioners and washing machines, will attract lower taxes as the government seeks to spur domestic consumption amid pressure from US tariffs.

What gets cheaper at 5% GST

Daily-use essentials, farm equipment, healthcare products and education supplies have largely moved to the 5% slab, giving relief to households and farmers.

1. Daily essentials

  • Hair oil, shampoo, toothpaste, toilet soap, toothbrushes, shaving cream (down from 18%)
  • Butter, ghee, cheese, dairy spreads (down from 12%)
  • Pre-packaged namkeens, bhujia, mixtures (down from 12%)
  • Utensils (down from 12%)
  • Feeding bottles, napkins for babies, clinical diapers (down from 12%)
  • Sewing machines and parts (down from 12%)

2. Healthcare

  • Individual health and life insurance (down from 18% to Nil)
  • Thermometers (18% → 5%)
  • Medical grade oxygen (12% → 5%)
  • Diagnostic kits & reagents (12% → 5%)
  • Glucometers and test strips (12% → 5%)
  • Corrective spectacles (12% → 5%)

3. Farm & agriculture

  • Tractor tyres & parts (18% → 5%)
  • Tractors (12% → 5%)
  • Bio-pesticides, micro-nutrients (12% → 5%)
  • Drip irrigation systems, sprinklers (12% → 5%)
  • Agricultural, horticultural & forestry machines (12% → 5%)

4. Education

  • Maps, charts, globes (12% → Nil)
  • Pencils, sharpeners, crayons, pastels (12% → Nil)
  • Exercise books, notebooks (12% → Nil)
  • Erasers (5% → Nil)

What’s under 18% GST

High-value goods such as automobiles and electronic appliances will now fall under the 18% slab, reduced from 28% earlier.

  1. Automobiles
  • Petrol & petrol hybrid, LPG, CNG cars (not exceeding1200 cc & 4000 mm) – 28% → 18%
  • Diesel & diesel hybrid cars (not exceeding 1500 cc & 4000 mm) – 28% → 18%
  • Three-wheeled vehicles – 28% → 18%
  • Motorcycles (350 cc and below) – 28% → 18%
  • Motor vehicles for transport of goods – 28% → 18%

2. Electronic appliances

  • Air conditioners – 28% → 18%
  • Televisions above 32 inches (including LED & LCD) – 28% → 18%
  • Monitors and projectors – 28% → 18%
  • Dishwashing machines – 28% → 18%

40% slab for sin goods

A separate 40% slab has been created for luxury and sin goods. This will cover: High-end cars, Tobacco and cigarettes

1. Tobacco and Pan Masala (Sin Goods)

  • Pan masala
  • Gutka
  • Chewing tobacco
  • Unmanufactured tobacco and tobacco refuse (excluding leaves)
  • Cigarettes
  • Cigars, cheroots, cigarillos, and similar substitutes

2. Aerated and Sugary Beverages

  • Carbonated drinks
  • Cold drinks with sugar
  • Caffeinated carbonated beverages

3. Luxury Cars

  • Petrol cars with engine capacity above 1200 cc
  • Diesel cars with engine capacity above 1500 cc

4. High-End Motorcycles

  • Motorcycles with engine capacity above 350 cc

5. Super-Luxury Marine and Aircraft

  • Yachts
  • Personal aircraft, including helicopters

6. Other Sin or Luxury Items (broader category)

  • Coal, lignite, peat
  • Online gambling and gaming services

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40% GST Rate? Complete List of Goods & Services Covered

The GST Council rationalised tax structure into: 5% (merit), 18% (standard) and a special 40% de-merit slab for selected sin/Super luxury goods & services.

As per the 56th GST Council recommendations, changes in GST rates (goods & services) — other than cigarettes, chewing tobacco (e.g., zarda), unmanufactured tobacco and beedi — will be effective from 22 September 2025.

For the specified goods (cigarettes, chewing tobacco like zarda, unmanufactured tobacco and beedi) the existing GST rates and compensation cess will continue to apply; new rates for these items will be implemented later, only after the Government deems the compensation-cess-related loan & interest liabilities discharged.

The tables below list all items placed in the 40% slab with their rate before and rate after

Goods moved to 40%:

S. No. HSN / Tariff item Description GST
rate
Before		 GST rate
After
1 2106 90 20 Pan masala* 28% 40%*
2 2202 10 All goods (including aerated waters), containing added sugar or other sweetening matter or flavoured 28% 40%
3 2202 99 90 Caffeinated Beverages 28% 40%
4 2202 Carbonated beverages of fruit drink or carbonated beverages with fruit juice 28% 40%
5 2202 91 00 /
2202 99		 Other non-alcoholic beverages 18% 40%
6 2401 * Unmanufactured tobacco; tobacco refuse [other than tobacco leaves]* 28% 40%
7 2402 * Cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes* 28% 40%
8 2403 * Other manufactured tobacco and tobacco substitutes; homogenised/reconstituted tobacco; extracts/essences* 28% 40%
9 2404 11 00 * Products containing tobacco or reconstituted tobacco and intended for inhalation without combustion* 28% 40%
10 2404 19 00 * Products containing tobacco or nicotine substitutes and intended for inhalation without combustion* 28% 40%
11 8703 Motor cars and other motor vehicles principally designed for the transport of persons, including station wagons and racing cars, [other than wherein 28% to 18% is mentioned ] 28% 40%
12 870340, 870360 Motor vehicles with both spark-ignition internal combustion reciprocating piston engine and electric motor as motors for propulsion, of engine capacity exceeding 1200cc or of length exceeding 4000 mm 28% 40%
13 870350, 870370 Motor vehicles with both compression-ignition internal combustion piston engine [diesel-or semi diesel] and electric motor as motors for propulsion, of engine capacity exceeding 1500cc or of length exceeding 4000 mm 28% 40%
14 8711 Motor cycles of engine capacity exceeding 350 cc 28% 40%
15 8802 Aircraft for personal use 28% 40%
16 8903 Yachts and other vessels for pleasure or sports 28% 40%
17 9302 Revolvers and pistols (other than heading 9303/9304) 28% 40%
18 9614 Smoking pipes (incl. pipe bowls), cigar/cigarette holders, parts thereof 28% 40%

What is the revised GST rate on small petrol, LPG, CNG, or diesel cars? What is covered under small cars?

The GST rate on all small cars has been reduced from 28% to 18%. For the purposes of GST, small cars means Petrol, LPG, or CNG cars with engine capacity up to 1200 cc and length up to 4000 mm and Diesel cars with engine capacity up to 1500 cc and length up to 4000 mm.

What is the new GST rate on vehicles exceeding 1500 cc or length exceeding 4000mm? What is the GST rate on utility vehicles?

The GST rate on all mid-size and large cars i.e vehicles exceeding 1500 cc or length exceeding 4000mm is 40%. Further, motor vehicles in the category of Utility Vehicles, by whatever name called including Sports Utility Vehicles (SUV), Multi Utility Vehicles (MUV), Multi-purpose Vehicles (MPV) or Cross-Over Utility Vehicles (XUV), with an engine capacity exceeding 1500 cc, length exceeding 4000 mm, and ground clearance of 170 mm and above, will also attract a GST rate of 40% without any cess.

Currently mid-size and big cars attract 28% GST and compensation cess ranging from 17-22% with the overall tax incidence ranging from 45-50%. What will be the new rate?

The new GST rate on mid-size and big cars will be 40% with no compensation cess

Services moved to 40%:

S. No. Heading / Code (as in your text) Description GST rate Before GST rate After
1 9973 Leasing or rental services, without operator, of goods 28% (with ITC) 40% (with ITC)
2 — Admission to casinos, race clubs, any place having casinos or race clubs, or sporting events like IPL 28% (with ITC) 40% (with ITC)
3 — Services by a race club for licensing of bookmakers in such club 28% (with ITC) 40% (with ITC)
4 — Specified “Actionable Claims” defined as goods — (betting, casinos, gambling, horse racing, lottery, online real-money gaming) 28% (with ITC) 40% (with ITC)

Tobacco & Cigarettes — special implementation clause

  • For specified goods — cigarettes, chewing tobacco (zarda), unmanufactured tobacco and beedi — the existing rates of GST and compensation cess will continue to apply.
  • The new (40%) rates for these specified tobacco items will be implemented at a later date, to be notified only after the government has discharged the entire loan & interest liabilities arising from compensation cess.
  • In short: deferred implementation for tobacco and specified smoke products (they remain on existing rate + cess for now).
Simplified GST Registration, Speedy Refunds, Export Growth: Major Trade Facilitation Steps

The 56th GST Council Meeting has introduced several important trade facilitation measures aimed at easing compliance, speeding up refunds, supporting small businesses, and strengthening India’s export competitiveness.

These reforms, many of which will be operationalised from 1 November 2025, focus on enhancing efficiency, reducing litigation, and improving ease of doing business under the GST regime.

1. Risk-Based Provisional Refund for Zero-Rated Supplies

To accelerate refund claims on account of exports and supplies to SEZ units/developers, the Council recommended an amendment to Rule 91(2) of the CGST Rules, 2017.

  • 90% of refund will be sanctioned provisionally on the basis of system-based risk evaluation.
  • In exceptional cases, officers may conduct a detailed scrutiny instead of granting provisional refunds.
  • Certain categories of registered persons may be notified as ineligible for provisional refunds.
  • Effective from: 1 November 2025.

This will provide significant liquidity relief to exporters and SEZ suppliers.

2. Provisional Refund for Inverted Duty Structure (IDS)

Currently, provisional refunds are available only for zero-rated supplies. The Council has extended this facility to refunds arising from the Inverted Duty Structure (IDS).

  • 90% of refund will be provisionally sanctioned, subject to risk evaluation.
  • Pending amendment to Section 54(6) of CGST Act, 2017, the CBIC will issue instructions to field formations to implement this system.
  • Effective from: 1 November 2025.

This move will ease cash flow blockages for businesses impacted by IDS.

3. Refunds for Low-Value Export Consignments

The Council recommended amending Section 54(14) of CGST Act, 2017 to remove the threshold limit for refund claims arising from exports with tax payment.

  • Particularly beneficial for small exporters using courier and postal channels.
  • Ensures a level playing field for micro and small exporters.

4. Simplified GST Registration Scheme for Small and Low-Risk Businesses

A new optional simplified registration scheme has been approved:

  • Auto-approval within 3 working days for low-risk applicants.
  • Eligibility: Output tax liability on supplies to registered persons not exceeding ₹2.5 lakh per month.
  • Flexible: Applicants can voluntarily opt-in or opt-out.
  • Will benefit about 96% of new GST applicants.
  • Effective from: 1 November 2025.

5. Simplified Registration for E-Commerce Suppliers

To ease compliance for small sellers on e-commerce platforms:

  • In-principle approval for a special registration scheme for suppliers selling through E-Commerce Operators (ECOs) across multiple states.
  • Will eliminate the requirement to maintain a principal place of business in each state.
  • Detailed modalities will be placed before the Council in subsequent meetings.

This reform will enable small businesses to scale across India via e-commerce.

6. Amendment in Place of Supply Rules for Intermediary Services

The Council recommended omitting Section 13(8)(b) of IGST Act, 2017.

  • After amendment, place of supply for intermediary services will be determined under Section 13(2) i.e., location of the recipient.
  • This change will allow Indian service providers acting as intermediaries to qualify their services as exports, enabling them to claim export benefits.

7. Reform in Post-Sale Discounts

7.1 Legal Amendments

  • Section 15(3)(b)(i) of CGST Act, 2017 to be omitted, removing the requirement of pre-agreed discount conditions.
  • Discounts will be valid if passed through credit notes under Section 34.
  • Recipients must reverse ITC proportionately when value of supply is reduced via credit note.
  • Section 34 will be amended to link it with Section 15(3)(b).
  • Circular No.212/6/2024-GST (dated 26 June 2024) will be rescinded.

7.2 Clarifications via Circular

To avoid litigation, the Council recommended clarifications on:

  • No ITC reversal for discounts issued via financial/commercial credit notes.
  • Treatment of manufacturer-to-dealer discounts as additional consideration in dealer-to-customer transactions.
  • Post-sale discounts as consideration in lieu of promotional activities undertaken by dealers.

8. RSP-Based Valuation for Tobacco Products

The Council recommended Retail Sale Price (RSP)-based valuation under GST for:

  • Pan Masala
  • Cigarettes
  • Gutkha
  • Chewing Tobacco
  • Zarda
  • Scented Tobacco
  • Unmanufactured Tobacco

Amendments in CGST Rules, 2017 and relevant notifications will be carried out to operationalise this change.

The trade facilitation measures announced by the 56th GST Council Meeting mark a transformational shift towards a faster, simpler, and fairer GST system.

  • Exporters and businesses impacted by IDS gain timely liquidity through risk-based provisional refunds.
  • Small businesses benefit from simplified registration schemes, especially those in e-commerce.
  • Amendments on intermediary services and post-sale discounts reduce litigation and provide certainty.
  • RSP-based valuation for tobacco ensures greater compliance and revenue integrity.

Collectively, these measures aim to boost ease of doing business, improve transparency, and support India’s trade ecosystem under GST.

GST Revisions on Service Sector – Works Contracts, Passenger & Goods Transportation, Hotels, Local Delivery, Job Work, Beauty & Wellness, Entertainment, Insurance and More

The 56th GST Council meeting has brought a series of important changes in the services sector, covering works contracts, passenger and goods transport, hotel accommodation, local delivery, job work, beauty & wellness services, entertainment, insurance, and more.

These rate revisions, effective from 22nd September 2025, are designed to rationalise taxation, reduce burden in essential sectors, and align GST with economic realities. Below is a detailed sector-wise breakdown.

1. Construction Sector

S. No. Entry From To
1 Composite supply of works contract and associated services in respect of offshore oil & gas exploration and production 12% with ITC 18% with ITC
2 Works contract predominantly involving earth work (>75%) provided to Government 12% with ITC 18% with ITC
3 Sub-contractor services to main contractor for above works to Government 12% with ITC 18% with ITC

2. Transportation Sector

S. No. Entry From To
1 Air transport of passengers (other than economy class) 12% with ITC 18% with ITC
2 Passenger transport by motor vehicle (fuel cost included) 5% with ITC of input services 12% with ITC → 18% with ITC
3 Transport of goods in containers by rail (other than Indian Railways) 12% with ITC 5% without ITC / 18% with ITC
4 Transportation of petroleum crude, natural gas, HSD, ATF through pipeline 5% without ITC 12% / 18% with ITC
5 GTA services 5% without ITC 12% / 18% with ITC
6 Renting of passenger motor vehicle (with fuel cost included) 5% with ITC of input services 12% / 18% with ITC
7 Renting of goods carriage (with fuel cost included) 12% with ITC 5% with ITC of input services / 18% with ITC
8 Multimodal transport within India 12% with ITC 5% (restricted ITC) / 18% with ITC

3. Job Work Sector

S. No. Entry From To
1 Job work for umbrellas 12% with ITC 5% with ITC
2 Printing of goods under Ch. 48/49 (12% goods) 5% / 12% with ITC 5% with ITC
3 Job work in relation to bricks (5% goods) 12% with ITC 5% with ITC
4 Job work for pharma goods (Ch. 30) 12% with ITC 5% with ITC
5 Job work for hides, skins, leather (Ch. 41) 12% with ITC 5% with ITC
6 Residual job work not elsewhere covered 12% with ITC 18% with ITC

4. Local Delivery Services

S. No. Entry From To
1 Local delivery services (courier/postal type) 18% with ITC 18% with ITC (no change)
2 Local delivery via E-Commerce Operator (ECO) Not notified under Sec. 9(5) To be notified @18%

5. Other Services

S. No. Entry From To
1 Third-party insurance of goods carriage 12% with ITC 5% with ITC
2 Exhibition of films (ticket ≤ ₹100) 12% with ITC 5% with ITC
3 Effluent treatment by CETP 12% with ITC 5% with ITC
4 Biomedical waste treatment 12% with ITC 5% with ITC
5 Hotel accommodation ≤ ₹7500/day 12% with ITC 5% without ITC
6 Professional/technical services for oil & gas exploration 12% with ITC 18% with ITC
7 Support services for oil & gas exploration 12% with ITC 18% with ITC
8 Beauty & physical well-being services (SAC 99972) 18% with ITC 5% without ITC

6. High Tax Bracket (28% → 40%)

S. No. Entry From To
1 Admission to casinos, race clubs, IPL, etc. 28% with ITC 40% with ITC
2 Licensing of bookmakers by race clubs 28% with ITC 40% with ITC
3 Leasing/rental services of goods (previously 28%) 28% with ITC 40% with ITC
4 Specified actionable claims (betting, gambling, online gaming, lottery, horse racing) 28% with ITC 40% with ITC

7. Exemptions

S. No. Entry From To
1 Individual health insurance (and reinsurance) 18% with ITC Exempt
2 Individual life insurance (and reinsurance) 18% with ITC Exempt

The services sector rate changes reflect two clear policy directions:

  • Relief measures have been provided in essential services like health insurance, hotel accommodation, beauty services, effluent treatment, biomedical waste treatment, and certain job work.
  • At the same time, luxury and non-essential services such as casinos, online gaming, race clubs, and high-value leasing have seen rates increase to 40%, ensuring higher revenue neutrality after abolition of compensation cess.

Overall, these rationalisations aim to balance affordability for consumers with revenue needs of the government, while simplifying the tax structure.

Revised GST Slabs for Construction, Cement and Handicrafts Industry Following the 56th GST Council Meeting

The 56th GST Council meeting has announced key rationalisations in the construction sector and handicrafts sector. These changes aim to provide relief to essential construction materials while also promoting India’s traditional art and handicrafts industry. The revised rates will come into effect from 22nd September 2025.

Construction Sector

(12% to 5%)

S. No. Chapter / Heading / Sub-heading / Tariff item Description of Goods
1 68 Sand lime bricks or Stone inlay work

(28% to 18%)

S. No. Chapter / Heading / Sub-heading / Tariff item Description of Goods
1 2523 Portland cement, aluminous cement, slag cement, super sulphate cement and similar hydraulic cements, whether or not coloured or in the form of clinkers

Handicrafts Sector

(12% to 5%)

S. No. Chapter / Heading / Sub-heading / Tariff item Description of Goods
1 44, 68, 83 Idols of wood, stone [including marble] and metals [other than those made of precious metals]
2 6802 Statues, statuettes, pedestals; high or low reliefs, crosses, figures of animals, bowls, vases, cups, cachou boxes, writing sets, ashtrays, paper weights, artificial fruit and foliage, etc.; other ornamental goods essentially of stone
3 6913 Statues and other ornamental articles
4 9601 Worked ivory, bone, tortoise shell, horn, antlers, mother of pearl, and other animal carving material and articles of these materials, articles of coral (including articles obtained by moulding)
5 9701 Paintings, drawings and pastels, executed entirely by hand, other than drawings of heading 4906 and other than hand-painted or hand-decorated manufactured articles; collages, mosaics and similar decorative plaques
6 9702 Original engravings, prints and lithographs
7 9703 Original sculptures and statuary, in any material
8 9705 Collections and collectors’ pieces of zoological, botanical, mineralogical, anatomical, historical, archaeological, paleontological, ethnographic or numismatic interest [other than numismatic coins]
9 9706 Antiques of an age exceeding one hundred years
10 3406 Handcrafted candles
11 4202 22, 4202 29, 4202 31 10, 4202 31 90, 4202 32, 4202 39 Handbags including pouches and purses; jewellery box
12 4416, 4421 99 90 Carved wood products, art ware/decorative articles of wood (including inlay work, casks, barrel, vats)
13 4414 Wooden frames for painting, photographs, mirrors etc
14 4420 Statuettes & other ornaments of wood, wood marquetry & inlaid, jewellery box, wood lathe and lacquer work [including lathe and lacquer work, ambadi sisal craft]
15 4503 90 90, 4504 90 Art ware of cork [including articles of sholapith]
16 6117, 6214 Handmade/hand embroidered shawls of sale value exceeding Rs. 2500 per piece
17 6802 Carved stone products (e.g., statues, statuettes, figures of animals, writing sets, ashtray, candle stand)
18 6815 99 90 Stone art ware, stone inlay work
19 691200 10, 691200 20 Tableware and kitchenware of clay and terracotta, other clay articles
20 6913 90 00 Statuettes & other ornamental ceramic articles (incl blue potteries)
21 7009 92 00 Ornamental framed mirrors
22 7018 90 10 Glass statues [other than those of crystal]
23 7020 00 90 Glass art ware [incl. pots, jars, votive, cask, cake cover, tulip bottle, vase]
24 7326 90 99 Art ware of iron
25 7419 80 Art ware of brass, copper/copper alloys, electro plated with nickel/silver
26 7616 99 90 Aluminium art ware
27 8306 Bells, gongs and like, non-electric, of base metal; statuettes, and other ornaments, of base metal; photograph, picture or similar frames, of base metal; mirrors of base metal; (including Bidriware, Panchloga artware, idol, Swamimalai bronze icons, dhokra jaali)
28 9405 10 Handcrafted lamps (including panchloga lamp)
29 9401 50, 9403 80 Furniture of bamboo, rattan and cane
30 9503 Dolls or other toys made of wood or metal or textile material [incl wooden toys of Sawantwadi, Channapatna toys, Thanjavur doll]
31 9504 Ganjifa card
32 9601 Worked articles of ivory, bone, tortoise shell, horn, antlers, coral, mother of pearl, seashell other animal carving material
33 9602 Worked vegetable or mineral carving, articles thereof, articles of wax, of stearin, of natural gums or natural resins or of modelling pastes etc. (including articles of lac, shellac)
34 9701 Hand paintings, drawings and pastels (incl Mysore painting, Rajasthan painting, Tanjore painting, Palm leaf painting, basoli etc)
35 9703 Original sculptures and statuary, in metal, stone or any material
36 4802 Handmade Paper and Paper board

By reducing GST on essential construction materials such as sand lime bricks, stone inlay work, and cement, the Council has aimed to provide relief to the housing and infrastructure sectors.

In the handicrafts sector, the decision to reduce rates to 5% across a wide range of handcrafted items—such as idols, statues, wooden crafts, handmade paper, shawls, paintings, sculptures, and traditional toys—provides a big boost to artisans, craftsmen, and the cottage industry. These measures not only make handicrafts more affordable for consumers but also encourage the preservation and promotion of India’s rich cultural heritage.

Overall, these reforms in construction and handicrafts are expected to stimulate employment, support artisans, and reduce costs in essential sectors, thereby aligning GST with both economic and cultural priorities.

Cars Become Cheaper | Revised GST Rates on Automobiles After the 56th GST Council Meeting

The 56th GST Council meeting has brought one of the most significant changes for the automobile sector since the introduction of GST in 2017. The FAQs released by the government provide clarity on the revised tax structure for cars, effective from 22nd September 2025. The changes aim to simplify the rate structure, remove compensation cess, and ensure transparency for both manufacturers and consumers.

1. GST on Small Cars

 

 

  • Definition of Small Cars:
    • Petrol, LPG, or CNG cars with engine capacity up to 1200 cc and length up to 4000 mm.
    • Diesel cars with engine capacity up to 1500 cc and length up to 4000 mm.
  • New Rate: 18% GST (earlier 28% + cess).
  • Impact: Buyers of hatchbacks and compact sedans will benefit from a significant reduction in overall tax incidence, potentially leading to lower on-road prices.

2. GST on Mid-size and Large Cars, SUVs, and Utility Vehicles

  • Definition:
    • Vehicles exceeding 1500 cc engine capacity OR length exceeding 4000 mm.
    • SUVs, MUVs, MPVs, XUVs with ground clearance of 170 mm and above also included.
  • New Rate: 40% GST (no separate cess).
  • Earlier Tax: 28% GST + 17–22% cess (total ~45–50%).
  • Impact: Tax incidence remains roughly the same, but merging cess into GST simplifies compliance. Luxury vehicles and SUVs continue to attract the highest slab.

3. GST on Three-Wheelers

 

 

  • Earlier Rate: 28%
  • New Rate: 18% GST
  • Impact: Brings relief to auto-rickshaw manufacturers and buyers, boosting the affordable public transport sector.

4. GST on Buses and Passenger Vehicles (10+ Seaters)

  • Earlier Rate: 28%
  • New Rate: 18% GST
  • Impact: Reduced costs for buses will benefit the public transport ecosystem and state transport corporations.

5. GST on Ambulances

  • Earlier Rate: 28%
  • New Rate: 18% GST
  • Impact: Lower taxation supports healthcare mobility and reduces costs for hospitals and ambulance providers.

6. GST on Goods Transport Vehicles (Lorries & Trucks)

 

 

  • Earlier Rate: 28%
  • New Rate: 18% GST
  • Impact: Brings down costs in the logistics and transport sector, which may indirectly benefit supply chains and reduce freight charges.

7. GST on Tractors and Semi-Trailers

  • Tractors: 5% GST (except large road tractors >1800 cc, taxed at 18%).
  • Impact: Relief for agriculture and transport operators, ensuring affordability for farmers and small transporters.

8. GST on Motorcycles

  • Motorcycles up to 350 cc (including 350cc): 18% GST
  • Motorcycles above 350 cc: 40% GST
  • Impact: Two-wheeler buyers in the commuter segment gain tax relief, while luxury and premium bikes remain highly taxed.

9. Simplification of Car Tax Structure

 

 

Previously, cars were taxed at 28% GST plus Compensation Cess (ranging 1–22%), making the total tax incidence vary between 29% and 50%. Now, the system is simplified to:

  • 18% for small cars
  • 40% for mid/large cars, SUVs, and luxury vehicles

This shift reduces confusion and removes the additional compliance burden of cess.

Conclusion

The 56th GST Council meeting has streamlined car taxation by introducing two clear slabs—18% and 40%. While small and affordable vehicles become cheaper, luxury and large vehicles continue to bear a higher tax burden. At the same time, tax rates on buses, ambulances, trucks, and three-wheelers have been lowered to 18%, ensuring support for public transport, healthcare, and logistics sectors.

This reform is expected to boost demand in the small car and commercial vehicle segments, while maintaining high taxation on luxury consumption, aligning with the principle of equity in taxation.

In-Depth Clarifications on the 56th GST Council Meeting FAQs

The 56th GST Council meeting, held in New Delhi on 3rd September 2025, introduced a landmark restructuring of GST rates across goods and services. To address common concerns, the government has released a set of Frequently Asked Questions (FAQs) that provide clarity on the applicability of new rates, input tax credit (ITC), transitional provisions, and sector-specific impacts.

Click here to download FAQ

Key Highlights from the FAQs

1. Effective Date of New GST Rates

The revised GST rates will apply from 22nd September 2025, except for sin goods like cigarettes, chewing tobacco, unmanufactured tobacco, and beedis. For these, current rates continue until outstanding compensation cess loans and interest are settled.

2. Registration Thresholds

There is no change in the registration threshold under the CGST Act for suppliers of goods.

3. Transitional Provisions – Supply, Advances, and ITC

  • Supplies made before the rate change but invoiced later will be taxed as per time of supply rules (Section 14, CGST Act).
  • Advances received before 22nd September 2025 will be taxed at old rates, while supplies made post-change will attract revised rates.
  • ITC already availed at higher rates can still be utilized, but where supplies turn exempt post-change, ITC reversal will be required.
  • Refunds of accumulated ITC are not admissible in cases where the rate change is due to rationalisation but inputs and outputs remain the same.

4. Imports and IGST

Imported goods will be subject to revised rates under the new GST notifications, unless specifically exempt.

5. Clarifications on Goods

  • Milk & Plant-based Milk: UHT milk is exempted; plant-based and soya milk drinks now taxed at 5%.
  • Agricultural Machinery: Rates reduced from 12% to 5%, balancing farmer relief with protection of domestic manufacturers.
  • Medicines & Medical Devices: Uniform concessional rate of 5% applies to medicines and most devices, aimed at reducing healthcare costs.
  • Automobiles:
    • Small cars – reduced to 18%.
    • Mid-size/large cars & SUVs – taxed at 40% (without cess).
    • Motorcycles up to 350cc – 18%; above 350cc – 40%.
    • Buses, ambulances, and goods vehicles – 18% (down from 28%).
  • Daily-use Goods: Toilet soap bars, shampoos, shaving creams, toothpaste, and toothbrushes are now taxed at 5% to ease burden on households.
  • Luxury & Sin Goods: Carbonated fruit beverages, online gaming, betting, casinos, and admission to IPL-like sporting events attract a special 40% rate.

6. Renewable Energy & Green Push

GST on renewable energy equipment has been cut from 12% to 5%, with refund mechanisms to neutralize inverted duty. This step is designed to boost clean energy adoption.

7. Services Sector

  • Passenger Transport: Road transport services remain at 5% without ITC (option to pay 18% with ITC).
  • Goods Transport Agency (GTA): Option to choose 5% (no ITC) or 18% (with ITC).
  • Job Work: For pharmaceuticals, hides, and leather (Chapter 41) reduced to 5% with ITC; residuary job work now 18%.
  • Beauty & Wellness: Salons, gyms, yoga centers, and spas now taxed at 5% (earlier 18%).
  • Insurance: All individual life and health insurance policies, including ULIPs and family floaters, are exempted from GST.

8. Sporting Events and Entertainment

  • IPL and similar events – 40% GST.
  • Recognized sporting events – exempt up to ₹500 ticket value, otherwise 18%.

Conclusion

The 56th GST Council meeting is one of the most significant reforms since GST’s introduction. By reducing rates on essential goods, healthcare, agriculture machinery, and transport while streamlining the taxation of luxury and sin goods, the Council has aimed to make GST more equitable and transparent. The FAQs further provide operational clarity to taxpayers on transitional provisions, ITC, exemptions, and new rate applicability.

With implementation from 22nd September 2025, businesses and consumers alike must adapt to these changes, which are expected to simplify compliance, reduce litigation, and align GST with broader socio-economic priorities.