The GST Council, chaired by Union Finance Minister Nirmala Sitharaman, approved a dual tax rate structure of 5% and 18% at its 56th meeting on September 3, 2025.
The new rate slabs, removing 12% and 28%, will be effective from September 22, 2025, with a special 40% rate for luxury and sin goods to offset revenue losses.
No decision was made on compensation to states for revenue loss, though several Opposition-ruled states demanded it.
Additional measures discussed include tax rate reductions for footwear and apparel, potential health insurance tax relief for senior citizens, faster MSME registration, and a seven-day timeline for refund clearances under inverted duty structures.
Action Items
None specified in the transcript.
Dual Tax Rate Structure Approval
The GST Council approved a dual tax rate structure, replacing the previous four-rate system with just two slabs: 5% and 18%.
The 12% and 28% GST rate slabs have been removed.
The new rates will take effect from September 22, 2025.
A new 40% slab for luxury and sin goods has been introduced to partially offset the estimated Rs 93,000 crore revenue shortfall, potentially adding Rs 45,000 crore to the exchequer.
The decision was reached by consensus, with no voting required among Council members.
Compensation to States for Revenue Loss
No decision has been taken on compensation to states for loss of revenue due to the rate restructuring.
Eight Opposition-ruled states, including Himachal Pradesh, Jharkhand, Kerala, Punjab, Tamil Nadu, Telangana, West Bengal, and Karnataka, have requested compensation or an estimation of the likely loss.
Additional Measures and Rate Reductions
The GST Council is likely to have approved reducing the tax rate on footwear and apparel priced up to Rs 2,500 from previous higher slabs to 5%.
Currently, these items are taxed at 5% up to Rs 1,000 and 12% above Rs 1,000.
Consideration is being given to exempting health insurance premiums for senior citizens and reducing rates on life-saving drugs.
Health insurance premiums may be placed in a lower tax slab to benefit taxpayers.
Registration process for Micro, Small, & Medium Enterprises (MSMEs) is set to be streamlined to be completed within three days, down from several weeks.
Refunds and Duty Structures
The Council agreed to clear pending refunds under the inverted duty structure for industries such as textiles, pharma, chemicals, and fertilisers within seven days.
Decisions
Approved dual GST rate structure of 5% and 18% — adopted by Council consensus to simplify the regime and boost compliance, while introducing a 40% slab for luxury and sin goods to partially offset anticipated revenue loss.
No decision on GST compensation for states — deferred due to lack of consensus and ongoing demands from Opposition-ruled states.
Open Questions / Follow-Ups
Will compensation for states' revenue losses be granted, and if so, what will be the quantum and methodology?
What is the official estimation of revenue loss for each state post-rate restructuring?
Will the discussed exemptions for health insurance (senior citizens) and life-saving drugs be formally announced?
When will the detailed operational guidelines for expedited MSME registration and seven-day refund clearances be released?