The Goods and Services Tax (GST) Council at the 56th GST Council Meeting on Wednesday collectively agreed to the proposals of the Union Government on GST rate cuts and reforms, the biggest overhaul in the GST law since its introduction in 2017.
With a dual focus on rate rationalization and compliance simplification, the Council’s decision are set to directly impact India’s start-up ecosystem and MSME sector.
Key Highlights
- GST Rate Rationalization:
The GST council has reduced the number of tax slabs from four (5%, 12%, 18%, 28%) to two (5% and 18%), with a new 40% “sin goods” rate for luxury or harmful items (effective from September 22, 2025). - Ease of Compliance:
Fast-track GST registrations for MSME and Start-Up with processing times in certain cases reduced to 3 days (reduced from the previous 30 days)
Expedite GST Refund based on system risk evaluation for Zero Rated Supplies and Supplies with Inverted Duty Structure.
Reduced classification disputes due to reduction in the number of slabs.
Key Takeaways for Startups & MSMEs
- Lower and Simplified Rates – reduced costs and increased competitiveness
- Streamlined Compliances – faster registration and easier dispute resolutions
- Better Cashflows – due to GST rates reduction and faster processing of refunds
- Increase in Demand – reduction in GST rates shall boost consumption
- Reduction in Slabs – simplified slabs improves predictability
The table below provides an industry-wise summary of the GST Rate Reductions:
| Industry | Goods / Services | Old → New GST rate | What does it mean / examples |
| FMCG / Consumer staples | Personal care (toothpaste, shampoo, soaps, hair oil, , toothpowder) | 12% / 18% → 5% | Broad relief on daily-use items → lower shelf prices; demand kicker for kirana/e-commerce sellers. |
| Agriculture | Agricultural goods such as tractors, horticultural or forestry machinery for soil preparation or cultivation, harvesting or threshing machinery etc. | 12% → 5% | Lower costs for farmers to boost overall consumption |
| Packaged foods | Biscuits, namkeen, chocolates, breakfast cereals | 12% / 18% → 5% | Mass-consumption foods move to 5%; expect MRP resets and promo activity. |
| Stationery / Education | Notebooks, exercise books, pencils, sharpeners, maps & globes | 12% (or 5%) → 0% | School essentials move to nil GST. |
| Healthcare – medicines | 33 lifesaving drugs and medicines | 12% → 0% | Zero-rated; direct price relief to patients. |
| 3 lifesaving drugs and medicines used for treatment of cancer, rare diseases | 5% → 0% | Zero-rated; direct price relief to patients. | |
| Healthcare – devices & supplies | Medical apparatus/devices for medical/surgical/dental/veterinary & analytical use | 18% → 5% | Hospitals/clinics benefit; improves affordability. |
| Wadding, gauze, bandages; diagnostic kits & reagents; glucometers & strips | 12% → 5% | Consumables cheaper; helps diagnostic chains. | |
| Insurance (B2C) | Individual life & health insurance policies | 18% → 0% (exempt) | Significant relief for retail customers; fintech / Insurtech distribution tailwind. |
| Hospitality | Hotel rooms ≤ ₹7,500/night | 12% (with ITC) → 5% (without ITC) | Boosts budget & mid-market hotels; ITC blocked at 5%. |
| Automotive – vehicles | Small cars; motorcycles ≤ 350 cc | 28% → 18% | Entry auto turns cheaper; supports 2-Wheeler & small personal vehicle sales. |
| Buses, trucks, ambulances; three-wheelers | 28% → 18% | Relief for logistics & public transport capex. | |
| Auto parts (uniform) | 28% → 18% (where applicable) | Uniform 18% across parts simplifies classification. | |
| Electronics & appliances | ACs, TVs, dishwashers, large consumer durables | 28% → 18% | Reduction in on-shelf prices |
| Construction materials | Cement | 28% → 18% | Lowers project costs for infra/real-estate MSMEs. |
| Energy storage | Batteries under heading 8507 (non-Li-ion) | 28% → 18% (Li-ion stays 18%) | Harmonized at 18%; EV / Back-up OEMs benefit. |
| Renewable energy | RE devices & parts for their manufacture | 12% → 5% | Eases EPC project budgets; improves tariffs in tenders. |
| Textiles (inputs) | Man-made fibre (MMF) | 18% → 5% | Major fix to inverted duty in Man-made fibre value-chain. |
| Man-made yarn | 12% → 5% | Yarn at 5% aligns with fibre; improves cashflows. | |
| Apparel & footwear (mass-market) | Apparel & footwear priced ≤ ₹2,500 | 12% → 5% | Expands 5% threshold from ₹1,000 to ₹2,500; boosting retail sales |
| Defense | Two-way radio (Walkie talkie) used by defense, police and paramilitary forces, Tanks and other armored fighting vehicles, etc. | 12% → 5% | Lower equipment costs of defense products; improves cashflows |
| Logistics / insurance support | Third-party insurance of goods carriage | 12% → 5% (with ITC) | Lower fleet insurance costs for transport MSMEs. |
Disclaimer: This article is based on public domain announcements of the 56th GST Council Meeting (as posted on 03 September 2025). The same would be given effect through relevant circulars / notifications / law amendments accessible on the CBIC website.
