New GST rates: All you need to know about what happens next, and when | FAQs
New GST rates: All you need to know about what happens next, and when
After the GST rates were changed on Wednesday, to come into effect on September 22, here are some of the major questions being asked, and their answers as shared by officials:
When will the changes in GST rates come into force?
As per recommendations of the GST Council in its 56th meeting, the changes in GST rates on services and goods other than cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and beedi will be effective from September, 22, 2025.
For the specified goods namely, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and beedi, the existing rates of GST and compensation cess will continue to apply and the new rates will be implemented at a later date to be notified.
What is the GST rate on medicines, and why have all medicines not been exempted from GST in general? All drugs or medicines have been prescribed a concessional rate of GST of 5%, except those specified at nil rate. If drugs/ medicines are fully exempted, the manufacturers/dealers would not be able to claim input tax credit. This would increase their effective tax incidence and cost of production. This may in turn be passed on to consumers/ patients in the form of higher prices which in turn would make the measure counterproductive.
What is the revised GST rate on small petrol, LPG, CNG, or diesel cars? What is covered under small cars? The GST rate on all small cars has been reduced from 28% to 18%. For the purposes of GST, small cars means Petrol, LPG, or CNG cars with engine capacity up to 1200 cc and length up to 4000 mm, and diesel cars with engine capacity up to 1500 cc and length up to 4000 mm.
What is the new GST rate on vehicles exceeding 1500 cc or length exceeding 4000mm, and on utility vehicles? The GST rate on all mid-size and large cars i.e vehicles exceeding 1500 cc or length exceeding 4000mm is 40%. Further, motor vehicles in the category of Utility Vehicles, by whatever name called including Sports Utility Vehicles (SUV), Multi Utility Vehicles (MUV), Multi-purpose Vehicles (MPV) or Cross-Over Utility Vehicles (XUV), with an engine capacity exceeding 1500 cc, length exceeding 4000 mm, and ground clearance of 170 mm and above, will also attract a GST rate of 40% without any cess.
What is the GST rate on 3-wheelers? The rate on three-wheelers is 18%. It has been reduced from 28%.
What is the GST rate on buses and other vehicles meant to carry 10 or more persons, including the driver, such as buses? All such vehicles will attract a GST rate of 18%. It has been reduced from 28%.
What is the GST rate on vehicles supplied as ambulances? Motor vehicles cleared as ambulances, and duly fitted with all necessary fitments, furniture, and accessories necessary for an ambulance at the time of clearance from the factory will attract a GST rate of 18%. It has been reduced from 28%.
What is the GST rate on goods transport vehicles such as lorries and trucks? Motor vehicles designed for the transport of goods, such as lorries and trucks will attract a GST rate of 18%. It has been reduced from 28%.
What is the GST rate on motorcycles? Those of engine capacity upto 350 cc attract a GST rate of 18% while motorcycles of engine capacity exceeding 350 cc attract a GST rate of 40%. The 40% rate is applicable only to motorcycles exceeding 350cc. Therefore the 18% rate also applies to motor cycles of 350cc or lesser than 350cc.
What will be the new rate for bigger cars? Currently mid-size and big cars attract 28% GST and compensation cess ranging from 17-22% with the overall tax incidence ranging from 45-50%. The new GST rate on mid-size and big cars will be 40% with no compensation cess.
Has GST rate been reduced on bicycles and parts? The GST rate has been reduced to 5% on bicycles and its parts from 12%.
Why is 40% rate slab referred to as a ‘special rate’? What is the basis for subjecting goods to special rate? The special rate is applicable only on few select goods, predominantly on sin goods and few luxury goods and therefore is a special rate. Most of these goods attracted Compensation Cess in addition to GST. Since it has been decided to end the Compensation Cess levy, the Compensation Cess rate is being merged with GST so as to maintain tax incidence on most goods. On other goods and services, the special rate has been applied as these were already attracting the highest GST rate of 28%.
Who has to register for GST (for businesses)? There is no change in threshold of the registration required for goods under CGST Act, 2017.
What happens to the rate if goods/services were supplied but invoices were issued later? If the payment is received after the change in rate of tax, then time of supply shall be seen as the date of receipt of payment or the date of issue of invoice, whichever is earlier.
What will happen to the Input Tax Credit for purchases for business use made before changes in GST rates? If a registered person receives an inward supply and tax has been duly charged on it, at a rate which is in consonance with the rate prevailing at the time of such supply, the said registered person is entitled to the credit of such tax paid.
What is the reason for 40% rate on ‘other non-alcoholic beverages’? The principle behind the recent rate rationalisation exercise is to keep similar goods at the same rate to avoid issues of misclassification and disputes. This has also been applied to ‘other nonalcoholic beverages’.
What is the reason for revising GST rate only on specified varieties of Indian bread? Bread was already exempt while pizza bread, roti, porotta, paratha etc attracted different rates. All Indian breads, by whatever name called, have been exempted even though only few goods have been mentioned by way of illustrative example.
Why has the rate of carbonated beverages of fruit drink or carbonated beverages with fruit juice been increased? These goods attracted compensation cess in addition to GST. Since it has been decided to end compensation cess levy, the tax has been increased to maintain the pre-rate rationalization level of tax.
Why is there a different tax treatment between paneer and other cheese? Prior to rate rationalisation, paneer sold in other than pre-packaged and labelled form already attracted nil rate. Therefore the changes have been made only in respect of paneer supplied in pre-packaged and labelled form. Paneer is an Indian cottage cheese. This is mostly produced in small scale sector. The measure is intended to promote Indian cottage cheese.
Has the GST on all agriculture machinery / equipment been reduced? The GST rate on agriculture machinery/equipment such as, sprinklers, drip irrigation system; agricultural, horticultural or forestry machinery for soil preparation or cultivation; lawn or sports-ground rollers, harvesting or threshing machinery, including straw or fodder balers; grass or hay mowers, other agricultural, horticultural, forestry, poultry-keeping or bee-keeping machinery, composting machines etc, which earlier attracted 12% GST, has now been reduced to 5%.
Also read | New GST rates announced in ‘relief for common man’
While providing relief for the farmers, it is important that the domestic manufacturing does not get adversely impacted. If agriculture machinery is fully exempted, the manufacturers/dealers of these goods would not be able to claim input tax credit on the GST paid on raw materials. This would increase their effective taxes and the cost of production. This may in turn be passed on to farmers in the form of higher prices.
What is the new GST rate on toilet soap bar? Why has a distinction been kept between liquid soap and soap in bars? The new GST rate on toilet soap bar is 5%. This is intended to lower the monthly expenditure for the lower middle class and the poorer sections of society.
Also read | GST on small cars cut, some motorcycles get cheaper
What is the reason for reducing GST on face powder and shampoos? Will this not benefit MNCs and luxury brands? These goods are daily use items for almost all segments of population. Although expensive face powder and shampoos sold by MNCs or luxury brands will also benefit, the objective of the rate rationalisation exercise is to further simplify the tax structure. Administering a tax based on brand or value of cosmetics will create complexity in tax structure besides posing challenges for administration.
Why has GST rate on coal been increased? Will this not impact electricity cost? Coal attracted, prior to rate rationalization, 5% GST+ Compensation Cess of ₹400/ton. The Council has recommended to end Compensation Cess and hence the rate has been merged with GST. There is no additional burden.
Also read | Individual health, life insurance policies exempt from GST
Which policies are covered under the ambit of the GST exemption recommended on life insurance? The policies covered under the exemption recommended on life insurance are all individual life insurance policies including term, ULIP, and endowment plans and reinsurance services thereof.
What about health insurance? The policies covered under the exemption recommended on health insurance are all individual health insurance policies including family floater plans and senior citizen policies and the reinsurance services thereof.
