The Goods and Services Tax (GST) regime has undergone one of its most comprehensive overhauls since its introduction, following the 56th GST Council Meeting. Effective from September 22, 2025, the changes are designed to make insurance affordable, reduce the cost of essential goods, and simplify the overall tax structure for businesses and citizens.
The Council announced exemptions on life and health insurance policies, a long-awaited step aimed at widening coverage. Whether term life, unit-linked insurance plans, endowment policies, or family health insurance, all are now exempt from GST. Reinsurance services for these products have also been included in the exemption list, significantly lowering premiums for households.
A major structural reform was introduced with the rationalisation of the tax system. The earlier four-tiered GST rates have been replaced with a simplified two-rate structure. The system now includes a merit rate of 5% and a standard rate of 18%, along with a de-merit rate of 40% applied to a limited category of luxury or non-essential goods. Officials believe this will streamline compliance and reduce confusion for both businesses and consumers.
For households, the most visible relief comes through reduced taxes on everyday items. Goods such as hair oil, shampoos, soap bars, toothbrushes, toothpaste, bicycles, and kitchenware have been shifted from higher slabs of 12% or 18% down to 5%. Ultra-high temperature (UHT) milk, packaged paneer, and Indian breads like chapati, paratha, and parotta have been moved to the zero-tax bracket.
The food sector has witnessed sweeping changes. Packaged namkeens, bhujia, sauces, pasta, instant noodles, chocolates, coffee, preserved meat, cornflakes, butter, and ghee now attract only 5% GST instead of the earlier 12% or 18%. These cuts are expected to directly benefit households while giving a boost to the food processing industry.
The Council also announced reductions in rates on medicines, medical devices, and life-saving drugs. Thirty-three drugs earlier taxed at 12% will now be exempt, while three medicines used in cancer and rare disease treatment have also been moved to zero percent. Other medicines have seen their tax rate halved from 12% to 5%. Medical devices such as diagnostic kits, glucometers, bandages, and reagents have similarly been moved to the 5% bracket. These changes are expected to make healthcare more affordable and accessible.
Automobiles too see substantial adjustments. Taxes on small cars and motorcycles up to 350cc have been reduced from 28% to 18%. Air-conditioners, dishwashers, and televisions up to 32 inches have also been shifted to 18%. Larger vehicles, including buses, trucks, and ambulances, have seen their tax rates cut to the same level. Auto parts, regardless of classification, will now uniformly attract 18%.
The move also corrects inverted duty structures in critical sectors. In textiles, manmade fibres now attract 5% instead of 18%, and yarn has been reduced from 12% to 5%. In the fertiliser industry, sulphuric acid, nitric acid, and ammonia have been brought down from 18% to 5%. Renewable energy devices and parts have seen rates halved to 5%, encouraging cleaner energy adoption.
Tourism and services also find relief under the new rates. Hotel accommodation priced at Rs 7,500 or below per night has been made tax-free. Beauty and wellness services including gyms, salons, yoga centres, and barber services are now charged at 5%, making them more accessible to wider sections of the population.
Residents and business owners in the Andaman and Nicobar Islands, like elsewhere, are required to implement the new rates without delay. Authorities have urged businesses to strictly adhere to the updated structure and warned of penalties for non-compliance. Citizens have been encouraged to report any discrepancies through a dedicated WhatsApp number, 9595359698, to ensure smooth implementation in the Union Territory.
With wide-ranging tax cuts spanning agriculture, healthcare, essential goods, and services, the changes under the 56th GST Council Meeting are positioned as a step towards both consumer relief and economic simplification. The coming months will reveal how effectively these reforms balance revenue with affordability across sectors.
