Decoding the GST Council’s 56th Meeting: The Story Beyond Numbers

The 56th meeting of the GST Council was held on 3rd September, 2025 at Sushma Swaraj Bhavan, New Delhi under the chairpersonship of the Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman. The GST Council inter-alia made the recommendations relating to changes in GST tax rates, provide relief to individuals, common man, aspirational middle class and measures for facilitation of trade in GST.

GST Reset: 6 Signals on India’s Road Ahead

1. Health first: Nudge through taxes.
The government is using GST as a behavioural tool. Sugary sodas, energy drinks, pan masala and tobacco now face 40% GST. At the same time, healthier substitutes—like plain mineral water or plant-based milk - drop to 5%. It’s a clear signal: choose better, pay less; indulge, pay more.

2. Inflation control: Relief on everyday items.
From milk and paneer to biscuits, soaps and shampoos - the GST cut to Nil–5% is designed to ease household budgets. Think of it as a stealth inflation shield: essentials get cheaper, so families feel less squeeze at the grocery counter.

3. Growth push: Cheaper cement, costlier coal.
The construction sector gets a booster shot - cement falls from 28%→18%, lowering building costs. To balance the books, coal and lignite move up from 5%→18%. The mix is clever: make housing and infra more affordable, while nudging the energy sector toward efficiency and cleaner fuels.

4. Sin & Luxury: From Cess to Clean GST

Historically, sin and luxury goods were never just taxed under GST - they carried a compensation cess on top of the 28% GST, meant to fund state revenues during the GST transition. For example, gutkha and chewing tobacco bore 28% GST plus a 160% cess, pan masala had a 60% cess, aerated and caffeinated drinks carried 12%, while luxury cars and big bikes had cess up to 15%. The effective burden often crossed 40–100% of retail price.

The Council now plans to scrap the cess structure and move these categories to a flat 40% GST once legacy compensation loans are cleared. This isn’t a big hike — in fact, for some products the effective tax may be similar or lower - but it’s a big step toward simplification and transparency. One exception: bidis actually get cheaper, at 18% GST.

5. Closing leakages: No more MRP games.
For years, pan masala and tobacco makers under-reported transaction values. Pan masala/tobacco companies were paying GST based on transaction value (the price they reported in their invoices to distributors). A pack that sells at ₹100 MRP in the market could be “invoiced” at only ₹50 to dealers. GST was then charged on ₹50, not ₹100. Now GST is pegged to the retail sale price (RSP). That shuts a loophole, ensures a level playing field, and protects government revenues.

6. Ease of doing business: Faster refunds, fewer disputes.
Businesses stuck with inverted duty credits (in some industries like textiles, pharma, or electronics assembly), firms pay higher GST on raw materials but face lower GST on finished products. Example: pay 18% GST on inputs, but only charge 5% on the final item. This leaves them with excess tax credit stuck with the government. They will now get 90% provisional refunds through an automated system - freeing up working capital faster. And with the GST Appellate Tribunal (GSTAT) going live by year-end, companies finally get a clear, time-bound dispute resolution forum. Less litigation uncertainty = more investor confidence.

When does this hit you?

• The new GST rates will kick in from 22 September 2025 for all services and most goods.

• Exception: Pan masala, gutkha, cigarettes, chewing/unmanufactured tobacco and bidis will remain under the old GST + cess system until the government clears outstanding compensation-cess loans (and interest). This phasing ensures revenue stability while those past obligations are repaid (approximately 31st March 2026).

Industry & Market Map — Who Gains, Who Loses

1. FMCG Sector - Positive
Expect a near-term lift to volumes and margins across staples/personal care as GST on daily items like soaps, shampoos, toothpaste and biscuits drops to 5%, with companies likely to pass benefits via price cuts or higher grammage-supporting rural demand into the festive quarter. Reuters also flags a broader consumption impulse from the overall tax rejig (plus recent macro tailwinds), with market futures indicating a stronger open on the “tax bonanza.”

2. Infrastructure, Cement & Energy Sector – Positive with caveats
The GST cut on cement (28%→18%) improves affordability for housing and infrastructure projects, which is constructive for the cement and construction materials sector. At the same time, the cut to 5% on renewable energy equipment supports capex in the clean energy sector. The caveat: coal and lignite see GST raised from 5% to 18%, which increases costs for conventional thermal power producers and heavy industry.

3. Beverages, Tobacco & Autos – Split Impact
For beverages, the effective burden remains ~40% (28% + 12% cess earlier vs. 40% GST now), so prices stay high and demand remains under pressure — but it’s not an incremental hike. In tobacco and pan masala, the headline rate (40% GST) looks lower than the old combined 60–100%+, yet with GST now linked to the printed MRP (RSP), companies lose the under-invoicing cushion; in practice, tax outgo tightens and margins remain stressed. In automobiles, the split is clearer: mass-market cars, 3-wheelers and smaller hybrids benefit from the cut to 18%, supporting affordability and volumes, while luxury cars, SUVs and big bikes move to a flat 40% — slightly lower than their earlier 43–50% burden, so not a major relief but at least not punitive.