GST 2.0: A strategic realignment towards consumption-led growth
FinTech BizNews Service
Mumbai, September 4, 2025: The 56th meeting of the GST Council was held in 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.
According to Himanshu Sinha, Partner- Tax Practice, Trilegal, one of the leading law firms in the country,
“The 56th GST Council Meeting has ushered in a landmark tax reform, implementing a pre-dominantly two-tier GST structure (5% merit rate, 18% standard rate) effective 22.09.2025 along with a special de-merit rate of 40% for a select few goods and services. This pivotal move aims to rationalize the tax regime, stimulate consumption, and bolster economic growth.
Significant reductions include essential household goods decreasing from 18% to 5%, and cement from 28% to 18%, providing considerable relief to consumers and the infrastructure sector. Additionally, individual life and health insurance policies now receive a complete GST exemption. Appreciably, applicable rate for renewable energy devices and parts for their manufacture is proposed to be reduced to 5%.
Measures to enhance manufacturing competitiveness and exports, such as correcting inverted duty structures in textiles and resolving intermediary service disputes through IGST Act amendments, will benefit sectors like IT and consulting. At the same time, notably, the applicable rates for inward supplies for petroleum operations have been increased. Overall, this comprehensive Rs48,000 crore reform package paired with the income tax benefits in this year’s budget are strategically designed to drive consumption and foster a more dynamic economic environment.”
Jignesh Ghelani, Partner at Dhruva Advisors, explains:"The GST Council in its 56th meeting recommended a complete exemption from GST on all individual life and health insurance policies. This change will apply to premiums on all individual life insurance whether pure protection, unit-linked, and to individual health insurance, including family floater and senior citizen plans. The exemption is scheduled to come into force on 22nd September 2025, coinciding with the transition to a streamlined two-rate GST structure. Importantly, the exemption also extends to the reinsurance of these individual policies, ensuring tax neutrality across the risk management chain. However, the benefit is limited to individual covers, group insurance policies, such as employer-sponsored health or life schemes, will continue to attract 18% GST with no ITC available to the employers. This makes it clear that the policy intent is to directly ease costs for households rather than institutional buyers.
While lower premiums are expected to stimulate demand and expand the policyholder base, the classification of these services as “exempt” means that insurers will lose access to input tax credits on expenses linked to such policies. Insurers will be required to reverse input tax credits relating to these exempt outputs. This embedded tax could eventually feed into the costing structure, thereby impacting on the profits of the Company. The Companies will therefore be required to deep dive into its cost structure and analyse the overall impact on the business."
