The 56th GST Council meeting made changes to the rates of goods and services under GST and also introduced optional rate structures and rationalisation across sectors. This article explains how these changes came into effect as well as their transitional provisions, ITC implications, and sector-wise rate changes in a clear and practical manner.
Effective Date and Notifications
i) The majority of the changed GST rates on goods and services will be applicable from 22 September 2025.
ii) The rates of various tobacco products like cigarettes, zarda, unmanufactured tobacco, and beedi will be changed at a later date i.e., after the payment of compensation cess liabilities has been cleared.
iii) Registration thresholds under the CGST Act have not been changed.
iv) Notifications will be issued and published on the CBIC website. Businesses should wait for these notifications before they update their systems.
Transitional Provisions
A. Time of Supply Rules
i) The situation when goods or services are supplied before the rate change but the invoice is issued later, Section 14 of the CGST Act would be applicable:
ii) If the money is received after a rate change, the time of supply shall be the earlier of the invoice date or the payment date.
iii) If the money was received before the rate change, the time of supply is the date of payment.
B. Stock on Hand
GST is applicable on supply, not on stock. Any supplies made on or after the effective date should be charged at the revised rates.
C. E-Way Bills
No cancellation or reissue of e-way bills is necessary for the goods in transit at the time when the new rates are to be applied.
Input Tax Credit (ITC) and Refunds
i) Input tax credit that has been availed in a valid manner can still be used for the output tax liabilities.
ii) If the supplies are made exempted after 22 September, ITC reversed for supplies made thereafter.
iii) Accumulated ITC will not be refunded when the same goods are subject to different rates at different times.
iv) IGST on imports shall be in accordance with the new rates unless a specific exemption is provided.
Key Sectoral Changes
Food and Beverages
i) UHT milk is no longer taxed; plant-based milk drinks and soya milk drinks have been reduced to 5%.
ii) The first time, the industry has been taxed at 5% without any specific qualifications in the food category.
iii) All Indian breads are now completely free of charge to get rid of classification disputes.
iv) The carbonated beverages with fruit juice traded at higher rates to keep the total incidence of the cess removal.
Daily Use Items
i) Toilet soap bars are taxed at 5%.
ii) Face powder and shampoos have been drastically reduced from 18% to 5%.
iii) Toothpaste, toothbrush, and dental floss have been reduced to 5%; the mouthwash remains unchanged.
Agriculture and Natural Products
i) The rate of most of the agricultural machinery has been lowered from 12% to 5% such as sprinklers, drip systems, and harvesters.
ii) Unlike natural honey, only the artificial honey is provided with an unfavourable subsidy.
iii) Raw cotton is still under reverse charge to maintain the ITC chain.
Healthcare
i) All medicines are at 5% except those that are at zero rate.
ii) The medical devices are at 5% to reduce healthcare costs; the refund mechanism is available for the inversion.
iii) Life and health insurance policies including reinsurance are not charged.
Energy and Infrastructure
i) The rate for coal has been adjusted to incorporate the compensation cess without any additional burden.
ii) The renewable energy equipment has been reduced to 5%.
iii) The marble, travertine, and granite blocks have been reduced to 5%.
Automobiles
i) Small cars are at 18% (earlier 28%).
ii) Mid-size and large cars, SUVs, and similar types of vehicles are at 40% without the cess.
iii) The three-wheelers, buses, and goods vehicles are at 18%.
iv) The motorcycles up to 350 cc are at 18%; above 350 cc are at 40%.
Consumer Durables
i) The air conditioners and dishwashers have been reduced to 18%.
ii) All TVs and monitors have been brought to a uniform rate of 18%.
iii) Batteries falling under the heading 8507 have been standardized to 18%.
Eyewear and Bicycles
i) The spectacles for the vision correction purpose are at 5%; others are at 18%.
ii) The bicycles and parts have been reduced to 5%.
Services
i) The passenger transport is at 5% without ITC; the option of 18% with ITC is available.
ii) The GTA services are at 5% without ITC; the option of 18% with ITC is available.
iii) The container train and multimodal transport have been given similar options.
iv) The job work for pharma and leather (Chapter 41) is at 5% with ITC; the residuary job work is at 18%.
v) The beauty and wellness services are at 5% without ITC.
vi) The lottery, betting, gambling, and online gaming are at 40%.
vii) The admission to IPL is at 40%; the recognised sporting events are exempt up to INR 500 ticket price.
Compliance Checklist
i) The ERP and invoicing systems should be updated for new rates from 22 September.
ii) The ITC reversals for exempt supplies should be configured.
iii) The review of contracts and payment timelines should be done to manage the time of supply impact.
iv) The refund documentation for inverted duty cases should be prepared.
v) The price changes should be communicated to distributors and retailers.
Final Word
The Council’s policy is a combination of simplification, parity, and welfare. The cut in rates for necessities, health care, and renewable energy reflects the social priorities whereas the merging of high-tax categories makes compliance easier. The companies can avoid last-minute rush and smoothly transition by planning early.
CBIC’s FAQs dated 03/09/2025: Decisions of 56th GST Council Explained
Recommendations dated 03/09/2025: 56th GST Council Meeting
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