The Goods and Services Tax (GST) Council, chaired by Union Finance Minister Nirmala Sitharaman, has approved a dual-rate structure of 5% and 18%, scrapping the existing 12% and 28% slabs. The decision was taken during the 56th GST Council meeting held on September 3–4, 2025.
This move marks a major step towards simplifying India’s indirect tax regime and will be rolled out in the coming weeks, just ahead of the festive season.
Major Announcements from the GST Council Meeting
1. Dual-Rate Structure Introduced
- Existing slabs of 12% and 28% have been removed.
- A simplified structure of 5% (lower rate) and 18% (standard rate) will now be applicable.
2. Relief for Footwear and Apparel
- GST reduced to 5% on footwear and apparel priced up to ₹2,500.
- Earlier, 5% was applicable only up to ₹1,000, while items above ₹1,000 attracted 12%.
3. Health Insurance & Life-Saving Drugs
- Exemption of GST on health insurance premiums for senior citizens.
- General health insurance premiums may shift to a lower slab, providing relief to taxpayers.
- Life-saving medicines to attract reduced GST rates.
4. MSME Registration Made Easier
- The registration process for MSMEs will be completed within three days.
- Currently, businesses wait several weeks to complete the process.
5. Faster Refunds Under Inverted Duty Structure
- Refunds for industries like textiles, pharma, chemicals, and fertilisers to be cleared within 7 days.
- This will ease the working capital crunch faced by manufacturers.
Opposition States Demand Compensation
Eight Opposition-ruled states including Kerala, Tamil Nadu, Punjab, Telangana, West Bengal, Karnataka, Himachal Pradesh, and Jharkhand have demanded that the Centre compensate for potential revenue losses arising from these rate cuts.
Impact of GST 2.0 on Businesses and Consumers
- Consumers will benefit from lower prices on daily essentials such as footwear, clothing, and medicines.
- Senior citizens gain a direct financial advantage through tax-free health insurance premiums.
- Small businesses and MSMEs will see reduced compliance burdens and quicker refunds, improving cash flow.
- However, the revenue impact on states remains a key concern that could spark Centre–State debates.
Conclusion
The GST 2.0 reforms mark a historic shift towards a simpler, consumer-friendly, and business-supportive taxation system in India. With the dual-rate structure of 5% and 18%, reduced burden on healthcare, and faster refunds for industries, the government aims to stimulate economic activity while keeping compliance efficient.
However, the Centre’s response to Opposition states’ demand for compensation will determine how smoothly these reforms are implemented.
