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GST Council Unveils New Rate Structure: 5 % and 18 % Brackets Come into Effect on 22 September
On 24 August 2025, the GST Council – the apex body that oversees tax policy in India – convened in a virtual session to announce a sweeping overhaul of the tax rates that will take effect on 22 September 2025. In a move that many analysts say reflects the government’s attempt to keep pace with inflationary pressures while fostering consumer confidence, the Council shifted a wide swath of goods and services into the 5 % and 18 % tax brackets. The changes are a mix of “relief” items that have been nudged down to a lower 5 % rate and “consolidation” items that will now see a 18 % rate.
What’s Moving?
5 % Bracket – “Low‑Cost” Goods Get a Tax Break
Coffee (Ground and Roasted) – The council has decided to slash the GST on coffee to 5 %. In an explanatory note released by the Ministry of Commerce, officials cited the “high domestic price of coffee” and the need to support the growing demand for this beverage.
Savoury Snacks – Items such as roasted nuts, seeds, and certain ready‑to‑eat snack packs are now in the 5 % group. The move is aimed at keeping snack prices stable amid rising commodity costs.
Spices and Condiments – Ground and whole spices (e.g., pepper, cardamom) have been brought down from 12 % to 5 %. This is part of a broader push to make cooking staples cheaper for the average Indian household.
Sugar and Sweeteners – The tax on refined sugar and honey has been reduced from 12 % to 5 % to curb the rising cost of household staples.
Baked Goods – Certain bakery items like bread and buns, previously taxed at 12 %, will now attract only 5 % GST. The move is expected to lower retail prices for grocery shoppers.
18 % Bracket – “Luxury” and “Service” Items Consolidated
Air Travel and Private Charters – While domestic flights still fall under the 18 % rate, the council clarified that certain private charter services will be taxed at the same rate to maintain revenue neutrality.
Luxury Vehicles – SUVs and premium cars that were previously taxed at 28 % have been moved to the 18 % bracket. The decision is driven by the council’s objective to create a more unified vehicle tax regime and reduce the administrative burden.
Hospitality Services – Hotels and resorts that were taxed at 12 % now face the 18 % rate, with the rationale that these establishments generate higher revenue and can absorb the tax hike without a drastic impact on consumer prices.
High‑End Consumer Electronics – Certain high‑tech gadgets that were in the 12 % bracket (e.g., high‑definition televisions) will now be taxed at 18 %.
Professional Services – Accounting and consulting services that were under 18 % remain unchanged, but the council clarified that “certain specialized advisory services” will be re‑classified to maintain consistency across service sectors.
Why the Shift? Economic Context
The GST Council’s decision comes amid a backdrop of persistent inflation and a widening retail price gap. The Finance Ministry’s latest inflation report (released on 10 August 2025) highlighted a 3.2 % rise in consumer price index (CPI) for staple goods over the past year. In a statement, Commerce Minister Piyush Goyal noted that “tax policy must evolve with the market to protect the purchasing power of the average Indian.”
The move also reflects the council’s aim to “align tax rates with the value‑added nature of goods” and to reduce the distortionary impact of high taxes on lower‑priced items. As per the Ministry’s briefing notes, lowering the tax on staples such as coffee and spices is expected to save consumers an estimated ₹15 crore per annum, according to preliminary estimates.
Implementation Timeline
Official Notification – The Ministry of Finance will issue a gazette notification on 18 September 2025, detailing the new rate structure and the list of goods and services affected.
Transition Period – Businesses will have a one‑month window to adjust their invoicing and GST filings. The GST portal’s “Rate Change Tracker” will be updated to reflect the new rates effective 22 September 2025.
Compliance – Companies must amend their Input Tax Credit (ITC) claims and ensure that the revised rates are reflected in their monthly returns (GSTR‑1, GSTR‑3B, and annual GSTR‑9).
Guidelines for Manufacturers – The Ministry has also announced a series of guidelines for manufacturers of spices and coffee, including a revised “Taxability Checklist” that will be made available on the GST portal on 20 September 2025.
Stakeholder Reactions
Industry Bodies – The Confederation of Indian Industry (CII) released a statement praising the “consumer‑friendly” nature of the move but urged the council to consider a phased rollout for the 18 % rate changes to avoid a sudden surge in operating costs for small‑to‑medium enterprises (SMEs).
Retail Chains – Major retailers such as Big Bazaar and Reliance Fresh expressed optimism that the reduced tax on staples would translate into lower shelf prices, potentially boosting footfall.
Tax Professionals – GST lawyers and consultants have begun preparing “quick‑reference” guides for firms to help them navigate the new tax brackets, emphasizing the importance of updating product tax classifications promptly.
Consumer Advocacy Groups – NGOs focusing on consumer rights applauded the 5 % rate shift, arguing that “making staple goods cheaper will have a direct positive impact on household budgets.”
Broader Implications
The GST Council’s adjustments underscore a broader policy trend: a willingness to use tax policy as a lever for economic stabilization. By shifting high‑price items into a lower tax bracket and consolidating luxury goods into a single higher bracket, the government aims to strike a balance between revenue generation and consumer welfare.
Moreover, the 5 % bracket expansion aligns with the government’s “Atmanirbhar Bharat” objective, which seeks to bolster domestic production and keep essential goods affordable. By providing a tax break for home‑grown spices and coffee, the council is encouraging local sourcing and potentially boosting small‑scale farmers.
Conversely, the 18 % bracket’s expansion signals a move toward a more streamlined tax regime for luxury and professional services, simplifying compliance for businesses that previously had to navigate multiple rate tiers.
What Comes Next
The immediate next step for businesses is to audit their product catalogs and service offerings to identify any items that have changed tax classification. The GST portal will provide a “Tax Rate History” tool that allows firms to view the tax rate for a specific product code over the past 12 months.
Taxpayers are advised to:
Update HS codes – Ensure that the Harmonized System (HS) codes used on invoices align with the new rates.
Review ITC Claims – Re‑validate input tax credits to avoid under‑or over‑payment issues.
Engage with Tax Advisors – Seek professional guidance on the implications for business valuation and profit margins.
Communicate with Customers – If the price changes are likely to affect retail pricing, firms should transparently communicate the new cost structure to avoid consumer backlash.
Conclusion
The GST Council’s latest decision to shift numerous goods and services into the 5 % and 18 % brackets marks a significant policy shift aimed at balancing fiscal responsibility with consumer welfare. While the move promises to reduce the tax burden on staples and align luxury goods under a unified higher rate, businesses must act swiftly to adjust their accounting practices and ensure compliance. As the new rates come into effect on 22 September 2025, the Indian economy will likely see an impact on consumer spending patterns and the broader retail landscape—an outcome that both policymakers and market participants will be keenly watching.
Read the Full Business Today Article at:
[ https://www.businesstoday.in/latest/economy/story/gst-council-shifts-items-to-5-and-18-bracket-new-rates-effective-sept-22-492401-2025-09-03 ]