GST Reform 2025 / New GST rates come into effect from today, understand all the rules in simple language here

From September 22, 2025, the first day of Navratri, major changes in India’s Goods and Services Tax (GST) will come into effect. This reform, also called GST 2.0, is considered a revolutionary step in the tax system. Approved by the GST Council under Finance Minister Nirmala Sitharaman in September 2025, its aim is to simplify tax rates, boost consumption, and make the system more rational. However, the new rules have raised many questions in people’s minds. Here’s a simple explanation of these changes:

1. What is GST?
GST (Goods and Services Tax) is a unified indirect tax on goods and services in India. It replaced older taxes like VAT, excise duty, and service tax, creating a uniform system nationwide.

2. When will revised GST rates apply?
The new rates will apply from September 22, 2025, based on the GST Council’s recommendations.

3. What will change from September 22?

• Two main slabs: 5% and 18%.

• Higher rate: 40% tax on harmful goods like alcohol and tobacco.

• Objective: Simplify rates, benefit consumers and businesses.

4. Will registration rules change?
No, registration rules and thresholds remain unchanged; only tax rates are revised.

5. How will new rates be notified?
Through official government notifications available on the CBIC website.

6. If supply is made before, but invoice issued later, which rate applies?
The supply date decides. If supply and payment were before September 22, old rates apply; otherwise, new ones.

7. What about advance payments?

• Before Sept 22: old rate applies.

• On/after Sept 22: new rate applies.

8. Do e-way bills need re-issuance?
No, bills issued before rate change remain valid until expiry.

9. What about existing stock?
GST applies at the time of supply. Supplies after Sept 22 attract new rates, even if stock is old.

10. What happens to old Input Tax Credit (ITC)?
ITC from earlier purchases remains valid and usable.

11. If supply becomes exempt after Sept 22, what about ITC already taken?
ITC must be reversed for exempt supplies.

12. ITC refund under inverted duty structure?
Not allowed for temporary rate changes, only for permanent differences.

13. Which life insurance policies are exempt?
All personal life insurance policies (term, endowment, ULIPs), including reinsurance, are exempt.

14. What about health insurance?
Private health policies (family floater, senior citizen) are exempt, along with reinsurance.

15. Input services for insurers?

• Reinsurance: exempt.

• Commission and brokerage: taxable, no ITC allowed.

16. Passenger transport tax?

• Road: 5% without ITC, or 18% with ITC.

• Air travel: 5% for economy, 18% for other classes.

17. Multimodal freight transport?

• Without air: 5% tax, ITC limited to 5%.

• With air: 18% tax, full ITC.

18. Who pays tax for local deliveries via e-commerce?

• Unregistered providers: operator pays.

• Registered: provider pays.

19. GST rate on local delivery services?
18%.

20. Are such deliveries treated as GTA (Goods Transport Agency)?
No, they are a separate service category.

21. Must pre-Sept 22 drug MRPs be withdrawn?
No, only updated price lists must be shared.

22. Why not exempt medicines completely?
Full exemption would block ITC, raising costs. Hence, medicines kept at concessional 5%.

23. Why not exempt farm machinery fully?
Exemption would block ITC, increasing prices. Reduced rates balance farmers’ needs and industry viability.

24. Why not exempt raw cotton?
Reverse charge applies; farmers don’t pay directly. It preserves industry ITC and stabilizes prices.

25. Geotextiles and agro-textiles rules?
Treated as textiles, not plastic. ITC refund process streamlined, though some variations may occur.

26. Tax on lease/rental without operator?
Same as goods. Example: if car attracts 18%, leasing without driver also attracts 18%.

27. Will new rates apply to imports?
Yes, from Sept 22, except exempted goods.

28. UHT milk is exempt, what about plant-based milk?
Plant-based drinks (soy, almond, etc.) attract 5%.

29. Why reduce tax on face powder and shampoo?
These are daily-use items. Lower rates simplify the system and benefit consumers across all brands.

30. Why restrict refunds on fake zari (metalized plastic film)?
The Council barred refunds only for fake zari made from plastic film; other plastic/rubber-based fabrics remain unaffected.