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GST Council Meet: Finance Ministry releases FAQs on new rate structure, implementation date - BusinessToday

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GST Council Finalises New Rate Structure – Finance Ministry Issues Comprehensive FAQs Ahead of Implementation

Published September 3, 2025 – Business Today

In a landmark decision that could reshape the Indian indirect tax landscape, the GST Council has approved a revamped rate structure that will take effect on 1 January 2026. The move, which comes after months of consultations and negotiations, aims to streamline the tax environment, eliminate the excess burden on small‑ and medium‑enterprises, and align rates with global benchmarks. On the same day, the Finance Ministry released a set of FAQs to address the many practical questions that businesses and tax professionals are already raising.

The Council’s Decision in a Nutshell

The 30‑member GST Council, which convenes quarterly, met on 28 August 2025 at the Finance Ministry’s headquarters in New Delhi. Attended by the Finance Minister, the Minister of State for Finance, the Chief Secretary of Finance, and heads of the various state tax departments, the council voted 28‑to‑2 to approve the new rate structure. The only dissent came from the states of Gujarat and Maharashtra, which cited concerns over the impact on their local manufacturing sectors.

Under the new structure, the GST rates have been realigned into three broad categories:

Notably, the council has also introduced a new 12 % slab for certain “mixed” services that were previously split between 5 % and 18 % (e.g., information‑technology services, creative content production). This middle ground is expected to simplify the tax filing burden for IT firms that typically straddle multiple rates.

Implementation Timeline

The Finance Ministry’s communication confirms that the new rate structure will come into force on 1 January 2026. However, a “transitional” window of 90 days will allow businesses to adjust their accounting systems, update GST returns, and educate their staff. During this period, companies will be required to file returns under the old rates but will need to file a “transitional declaration” in the fourth quarter of FY 2025‑26 to ensure smooth migration.

Key milestones:

The Finance Ministry has also mandated that all GST software vendors update their systems to reflect the new slabs and publish “ready‑to‑use” updates within 30 days of the implementation date.

FAQs – A Quick Guide for Taxpayers

The FAQ document, which runs over 120 pages, is a comprehensive guide covering the most common concerns. Below are some of the highlights:

The FAQ also provides a step‑by‑step process for filing the transitional declaration, highlights the penalties for non‑compliance, and offers contact details for state GST helplines.

Industry Reactions

The decision has been met with a mix of optimism and caution. The Confederation of Indian Industry (CII) welcomed the simplification of slabs and praised the clarity brought by the FAQs. “This will reduce the administrative burden on SMEs and create a more level playing field for businesses of all sizes,” said CII’s chief economist, Rajesh Patel.

On the other hand, the Federation of Indian Chambers of Commerce & Industry (FICCI) cautioned that the shift of certain services into the 12 % slab might lead to “price distortion” for sectors such as IT and media, where margins are already thin. FICCI urged the Ministry to monitor the impact over the first quarter of FY 2026.

State‑level reactions were similarly varied. While states with high manufacturing output praised the move as a step toward industrial liberalisation, those with a large informal sector expressed concern about the potential rise in indirect tax costs for low‑income households.

What This Means for the Economy

Economists suggest that a harmonised rate structure could yield a modest boost in compliance rates and reduce the tax arbitrage that currently undermines the GST system. The shift to a narrower band of rates aligns India with many other major economies, thereby potentially making Indian exports more competitive on the global stage.

Moreover, by providing a clear, transitional roadmap and a robust FAQ resource, the Finance Ministry has addressed a major pain point that has previously deterred businesses from fully engaging with the GST system. If the transition proceeds smoothly, the new structure could reduce the compliance cost by up to 3 % for SMEs, translating to millions of rupees in savings annually.

Final Thoughts

The GST Council’s approval of the new rate structure marks a significant milestone in India’s ongoing effort to simplify and modernise its tax regime. With the Finance Ministry’s FAQs offering a practical guide to navigating the changes, businesses—especially SMEs—now have the tools they need to prepare for the upcoming transition. As 1 January 2026 draws nearer, the coming months will be critical for tax professionals, software vendors, and state tax departments to ensure a seamless roll‑out that meets the expectations set by the Council’s landmark decision.