Finance minister Nirmala Sitharaman on Wednesday announced sweeping changes to the Goods and Services Tax (GST) regime after the 56th GST Council meeting in New Delhi.
Billed as the “Next-Gen GST Reform”, the move rationalises the tax structure to two main slabs of 5% and 18% by merging the earlier 12% and 28% rates. A landmark decision also exempts all individual life and health insurance policies from GST, which the minister called a “historic Diwali gift” for citizens.
The changes are set to lower costs on essential goods and services, while certain luxury items and “sin goods” will see higher rates. Here are the top Frequently Asked Questions (FAQs) answered:
When will the changes in GST rates come into force?
The revised GST rates on most goods and services will be effective from 22nd September, 2025.
For specific goods like cigarettes, chewing tobacco (zarda), unmanufactured tobacco, and beedis, the existing GST rates and compensation cess will continue for now. Their new rates will be notified later once all pending cess-related loan obligations are cleared.
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What is the GST rate on medicines?
All medicines are prescribed a concessional GST rate of 5%, except those listed at nil rate.
Does the 5% GST rate apply to all medical devices?
Yes. All medical, surgical, dental, and veterinary devices are taxed at 5% GST, unless specifically exempted.
What is the new GST rate on small cars?
The GST on small petrol, LPG, CNG, and diesel cars has been cut from 28% to 18%.
Small cars means:
Petrol/LPG/CNG cars: engine capacity up to 1200 cc and length up to 4000 mm
Diesel cars: engine capacity up to 1500 cc and length up to 4000 mm
What about larger cars and SUVs?
All mid-size and large cars exceeding 1500 cc engine capacity or 4000 mm length will now attract 40% GST (no compensation cess).
The same 40% rate applies to SUVs, MUVs, MPVs and XUVs with ground clearance of 170 mm or above.
What is the GST rate on motorcycles?
Motorcycles up to 350 cc: 18%
Motorcycles exceeding 350 cc: 40%
Has the GST rate been changed for TVs, ACs and dishwashers?
Yes.
Air conditioners and dishwashers: reduced from 28% to 18%
Televisions and monitors: now uniformly 18% (earlier, above 32 inches attracted 28%)
What is the GST rate on batteries?
All batteries under heading 8507 will now attract a uniform 18% GST.
(Previously, lithium-ion batteries were 18%, while others were 28%).
Will e-way bills have to be cancelled for goods in transit when rates change?
No. Goods already in transit will remain valid under the existing e-way bill. There is no requirement for cancellation or fresh generation.
Why is GST on some beverages 40%?
The aim is to keep similar goods at the same rate to prevent misclassification. Hence, ‘other non-alcoholic beverages’ fall under the 40% slab.
What is the GST treatment of Indian breads?
Earlier, bread was exempt, but items like roti, paratha, and pizza bread were taxed differently. Now, all Indian breads, regardless of name, are exempt to ensure uniformity.
Why has GST on carbonated fruit beverages increased?
These products earlier attracted GST + compensation cess. With cess being withdrawn, the GST rate has been raised to 40%, maintaining the earlier overall tax incidence.
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Why is there a different GST rate for paneer and cheese?
Paneer sold in unpackaged form was already exempt. The exemption has now been extended to all paneer, including packaged and labelled ones, to support small-scale producers.
What is the GST rate on beauty and wellness services?
Beauty and physical well-being services — including salons, gyms, yoga centres, and health clubs — will now be taxed at 5% without ITC (down from 18%).
What is the GST treatment of UHT milk and plant-based milk?
UHT milk: exempted
Plant-based milk drinks (including soya): now 5% (down from 18% for most, 12% for soya).
Also read: New GST rates: List of key items shared by government on tax cut
What about passenger and goods transport services?
Passenger transport (road): 5% (no ITC) or 18% (with ITC option)
Passenger transport (air): economy class at 5%; other classes at 18%
Goods transport by GTA: 5% (no ITC) or 18% (with ITC option)
Multimodal transport: 5% (restricted ITC) unless air is involved (then 18%)
Are insurance policies now exempt from GST?
Yes. All individual life insurance (term, ULIP, endowment) and health insurance (family, senior citizen, etc.) policies, and their reinsurance services are fully exempt.