56th GST Council Meeting: Landmark Reforms and Simplified Tax Structure

The 56th GST Council Meeting, held in New Delhi under the chairpersonship of Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman, has set the stage for a new chapter in India’s tax reform journey. Aligned with Prime Minister Shri Narendra Modi’s announcement of “next-generation GST reforms” on August 15, 2025, these decisions promise to ease compliance, reduce costs, and deliver greater benefits to citizens and businesses alike.
At EaseMyGST, we believe these reforms will significantly strengthen both ease of living and ease of doing business for India’s taxpayers.

Major Highlights of the Reforms

1. Transition to a Simplified Tax Structure:
As per the new GST rates, the government has moved to a streamlined three-rate structure, making the system more predictable, transparent, and citizen-friendly. Importantly, the earlier system of multiple cesses has been removed, further simplifying compliance.

Standard Rate (18%) – Applicable to the majority of goods and services.
Merit Rate (5%) – Applied to essential commodities and socially beneficial items.
De-merit Rate (40%) – Restricted to luxury and sin goods such as tobacco, high-sugar beverages, luxury cars, and yachts.
This simplification will reduce compliance challenges, help businesses plan better, and create a fairer tax environment.

2. Sector-Wise Rate Relief:
Textiles & Manufacturing: Apparel and clothing accessories with a sale value exceeding ₹2,500 per piece will attract 18% GST, while those priced below ₹2,500 per piece will be subject to 5% GST.
Healthcare & Insurance: Complete GST exemption on individual life and health insurance policies, along with reinsurance. Lifesaving drugs and medical equipment see major rate cuts, some reduced to NIL.
Food & Essentials: Everyday items like soaps, shampoos, bicycles, and kitchenware now attract only 5%, while UHT milk, paneer, and all Indian breads move to NIL.
Automobiles: Small passenger cars (petrol/LPG/CNG up to 1,200cc; diesel up to 1,500cc, and length not exceeding 4,000 mm) will now attract 18% GST instead of the earlier 28%. Larger and luxury cars (exceeding those thresholds) will be taxed at a flat 40% GST. Electric vehicles remain at 5% GST, and auto-parts have been generally rationalized to 18%
Agriculture: Major reductions on tractors, fertilizers, and farm equipment, bringing down costs for farmers.
Infrastructure: Cement comes down from 28% to 18%, while renewable energy devices attract only 5%.
Services: Hotel stays up to ₹7,500/day and wellness services (gyms, salons, yoga centers) reduced to 5%.

3. Administrative & Compliance Reforms:

GST Appellate Tribunal (GSTAT):
- Operational by September 2025 for appeals.
- National Appellate Authority role assigned to the Principal Bench.
- Backlog appeals allowed till June 30, 2026.

Refund Reforms: 90% provisional refunds for inverted duty cases. Data-driven, system-based refund approvals for faster settlements.

Simplified GST Registration for Small Businesses: The GST Council has introduced an optional simplified registration scheme to ease compliance for small and low-risk businesses. Under this scheme, registration will be automatically approved within three working days for applicants whose monthly output tax liability does not exceed ₹2.5 lakh (inclusive of CGST, SGST/UTGST, and IGST). Businesses can voluntarily opt in or withdraw from the scheme as per their convenience.

4. Economic & Social Impact:
The reforms are expected to:
- Lower household expenditure on essential items.
- Support farmers and labor-intensive industries like textiles and handicrafts.
- Improve access to healthcare and insurance for individuals and families.
- Drive growth in infrastructure, automobiles, and manufacturing sectors.
- Enhance ease of doing business through reduced disputes and faster refunds.

5. Key changes for textile industry:
The GST rationalisation in textiles will remove distortions, lower production costs, boost demand, support exports, and enhance India’s global competitiveness. This welcome step will stimulate domestic consumption and catalyse India’s textile and apparel market towards the USD 350 billion target by 2030.

Strengthening the Value Chain
The reforms correct anomalies at the fibre stage, reduce costs at the yarn and fabric stages, improve garment affordability, revive demand at the retail stage, and enhance export competitiveness. Importantly, these measures give a strong impetus to India’s fibre-neutral policy, ensuring balanced growth across cotton and man-made segments.

Key GST Rationalisations:

- Readymade Garments & Made ups: 5% GST rate up to ₹2,500/piece (earlier ₹1,000) on items of readymade garments and made ups (excluding HS (other than 63053200, 63053300, 6309)). This makes affordable apparel cheaper, particularly for middle-class and low-income households. It is expected to revive demand in Tier-2/3 towns and rural markets. Given the labour-intensive nature of garmenting, higher demand will sustain and expand employment, especially for women in stitching, tailoring, and finishing units. The move will also support Make in India brands, helping them compete with cheap imports in low and mid-price segments.

- Man-Made Fibres & Yarns: GST reduced from 18%→5% (fibres) and 12%→5% (yarns). This corrects the inverted duty structure (IDS), aligns fibre–yarn–fabric rates, and removes long-standing working capital burdens on manufacturers. With a large share of MMF production in small and medium units, the cut eases cost pressures, strengthens cash flows, and makes Indian MMF-based garments globally more price-competitive—supporting India’s ambition to emerge as a hub for synthetic textiles and MMF garments.

- Carpets & Floor Coverings (HS 5701–5705): GST reduced from 12% to 5%. This will boost exports from clusters such as Bhadohi and Srinagar, strengthen traditional crafts, and improve affordability in domestic markets.

- Handicrafts & Handlooms: GST reduced from 12% to 5% on 36 handicraft items, cotton rugs of handloom, and handwoven carpets under HS 5705. This measure will provide relief to artisans, enhance rural livelihoods, and support India’s rich craft traditions.

- Sewing Machines (domestic and industrial covered under  HS 8452): GST reduced from 12% to 5%, easing costs for tailoring units and boosting domestic manufacturing.

Fewer GST Slabs – Simplifying Compliance | GST 2.0

Businesses currently operate with multiple GST slabs: 5%, 12%, 18%, and 28%. The proposed structure reduces this to primarily two slabs: 5% and 18%, with a special 40% slab for luxury and sin goods.

Impact on Businesses:
- Simplified accounting and invoicing, reducing errors and reconciliation efforts.
- Lower compliance costs, especially for SMEs.
- Faster adaptation to tax reforms and less dependency on external consultants.

Impact on Consumers:
- Transparent pricing and simpler understanding of tax components.
- Potential savings if essential goods are moved to a lower slab.

Business Preparedness Challenge:
While reforms promise ease, businesses are racing against time. Rate changes are expected before October 2025, but without clear timelines, companies face hurdles in updating MRPs, packaging, and passing on benefits. Early re-strategizing of pricing and supply chains is critical to avoid last-minute disruption.

What Businesses Should Do Next

1. Review Current Pricing & Contracts – Businesses should immediately assess how the revised rates will impact their cost structures, customer pricing, and existing supply contracts.
2. Update Accounting & ERP Systems – Ensure that GST rates across invoicing, billing, and accounting software are updated to avoid compliance errors.
3. Re-check Vendor & Customer Invoices – Validate that all vendors and service providers implement the new rates correctly to prevent mismatched ITC claims.
4. Plan Cashflows with New Refund Rules – With faster refunds expected, businesses should factor in improved working capital planning.
5. Stay Prepared for GSTAT – Companies with pending disputes should prepare documentation for timely filing before the new tribunal.

Read the Official press release by the government here!

Watch the full 56th GST Council Meeting here 56th GST Council Meet!

How EaseMyGST Will Support You

At EaseMyGST, we are fully geared up to help our clients implement these reforms smoothly:
🔹 Auto-Updated Rate Library – Our system will automatically reflect the new GST rates across products and services.
🔹 Smart Reconciliation Tools – Detect mismatched invoices or incorrect rate application instantly.
🔹 Compliance Alerts – Get real-time notifications through mails on upcoming deadlines, GSTAT appeal timelines, and refund eligibility.
🔹 Custom Transition Reports – Assess sector-specific impact (healthcare, FMCG, textiles, etc.) for your business.
🔹 Expert Guidance – Our tax specialists will handhold you through filing, refunds, and dispute resolution.

With these features, EaseMyGST ensures that your compliance is not only accurate but also effortless during this transition.

📌 FAQ on Revised GST Rates (56th Council Meeting)

General Applicability

1. When will the new GST rates apply?
👉 The revised GST rates (except for tobacco products like cigarettes, zarda, beedi, etc.) will be effective from 22nd September, 2025.
For tobacco products, the current rates will continue until further notification after repayment of compensation cess loans.

2. Has the GST registration threshold for goods changed?
👉 No. The registration threshold under the CGST Act, 2017 remains unchanged.

3. Where can I find the official notification of revised rates?
👉 The changes will be published in the official Rate Notification on the CBIC website.

4. What happens if goods/services were supplied before the rate change but invoiced later?
👉 As per Section 14 (a)(i) of CGST Act, 2017:
- If payment is received after the rate change → Time of supply = earlier of invoice date or payment date.
- If payment was received before the rate change → Time of supply = date of payment.

5. How will advances be taxed when the rate changes?
👉 GST will be determined as per time of supply rules (Section 14, CGST Act). The applicable rate will depend on whether advance/payment or invoice was issued before/after the new rate date.

6. Will I lose ITC on purchases made before the new rates?
👉 No. If GST was charged correctly at the prevailing rate at the time of supply, ITC can be claimed in line with Section 16(1), CGST Act, subject to other conditions.

7. What about IGST on imports?
👉 IGST on imports will align with the notified GST rates, unless specifically exempted.

8. Can I still use my ITC balance if the output GST is reduced?
👉 Yes ✅. Once ITC is credited to your ledger, it can be used to pay any GST liability as per Section 49(4), CGST Act.

9. My supplies are exempt under new rates, but I have ITC. Do I need to reverse it?
👉 - Supplies made till 21st Sept 2025 → ITC can be utilized.
- Supplies made on/after 22nd Sept 2025 → ITC reversal will be required.

10. Can I claim refund of accumulated ITC due to inverted duty structure before the rate change?
👉 No. As per Circular No. 135/05/2020-GST, refund is available only where input tax rate is higher than output tax rate (not when the same goods are taxed at different rates over time).

Input Tax Credit (ITC)

11. Can ITC on capital goods purchased before rate change still be used?
👉 Yes ✅. ITC on eligible capital goods is not impacted by rate changes.

12. What about ITC on goods in transit on 22nd Sept?
👉 ITC can be claimed if invoice is issued before 22nd Sept and goods are received later (as per Section 16 conditions).

13. If my output becomes exempt, do I need to reverse all ITC?
👉 Yes. ITC relating to exempt supplies (post 22nd Sept) must be reversed as per Rule 42 & 43 of CGST Rules.

14. Will transitional ITC be separately notified?
👉 No special ITC rules have been notified — existing provisions apply.

15. Can ITC on input services prior to rate change be used after?
👉 Yes ✅. As long as services were supplied and tax paid at the correct rate.

16. What about ITC on stock lying with traders on 22nd Sept?
👉 The ITC already available remains valid. No reversal required unless stock pertains to exempt goods.

17. Can ITC be carried forward into the new rate regime?
👉 Yes. ITC balance in electronic credit ledger remains unaffected.

18. Is ITC blocked if goods become NIL rated after 22nd Sept?
👉 Yes. ITC on purchases for supplies becoming exempt/NIL post 22nd Sept must be reversed.

19. Can exporters claim refunds under new rates?
👉 Yes. Zero-rated supply provisions remain unchanged. Exporters can still claim refunds.

20. What about SEZ supplies?
👉 Supplies to SEZ continue as zero-rated. No change due to new rates.

Refunds & Disputes

21. How will refund claims filed before 22nd Sept be processed?
👉 Refunds will be processed as per the old rate structure applicable at the time of supply.

22. What about refund claims after 22nd Sept for earlier supplies?
👉 Refunds will still apply at the old rate (supply-date based).

23. Will refund of inverted duty be faster now?
👉 Yes ✅. New rules allow 90% provisional refunds and system-driven approvals.

24. Can I claim a refund if my product is exempted under new rates?
👉 No. Refunds of ITC are not allowed if output supply is exempt.

25. Will GSTAT (new appellate tribunal) hear refund disputes too?
👉 Yes. Refund-related disputes can also be appealed before GSTAT.

26. What’s the deadline to file pending appeals in GSTAT?
👉 All backlog appeals can be filed till 30th June, 2026.

27. If refund claims are rejected earlier, can I reapply under new rules?
👉 No. Fresh claims cannot be filed unless specific relaxation is notified.

28. Will exporters benefit from faster refunds?
👉 Yes ✅. Data-driven, automated refunds will speed up GST refunds for exporters.

29. What about state-wise variations in refund timelines?
👉 Refund processing will be system-based and uniform across states.

30. Will transitional refund forms be issued?
👉 No new refund forms have been announced. Existing forms (RFD-01 etc.) will continue.

The 56th GST Council Meeting was more than just a policy update—it is a milestone towards a simpler, fairer, and growth-oriented GST regime. With a rationalized tax structure, sector-specific relief, and institutional reforms like GSTAT, India is moving towards a system that balances government revenue with citizen welfare.
At EaseMyGST, we remain committed to helping businesses and taxpayers adapt to these changes seamlessly—ensuring compliance stays stress-free while you focus on growth.