FAQ on GST Rate Rationalization Based on Recommendations in its 56th Council Meeting

 

Context

• The 56th GST Council meeting was held on 3–4 September 2025, chaired by the Finance Minister.
• Under its “Next-Generation GST” roadmap (announced 15 August 2025), the Council undertook sweeping rate rationalization of GST across goods and services.
• Many of these changes will take effect from 22 September 2025.
• The FAQ article clarifies how certain new rules will be applied in practice.

---

Key FAQs & Clarifications

Here are the frequently asked questions, with explanations and consequences:

FAQ / Question	What Change / Clarification	Implication / Practical Effect
Q1. Re-labelling of Medicines (MRP) pre-22 September	NPPA issued Office Memoranda (OMs) clarifying: • Manufacturers/marketers must revise the MRP lists (Form V/VI) to reflect new GST rates. • But recalling, relabelling, or re-stickering of packs already in the market before 22 September is not mandatory, provided that price compliance at retailer level can be ensured.	Reduces burden/cost for manufacturers to recall or relabel existing stock. Retailers must ensure the displayed MRP reflects new rates. Useful operational flexibility.
Q2. Drones (Unmanned Aircrafts)	Previously, different types of drones had different GST rates (5%, 18%, 28%). The Council has recommended a uniform 5% GST rate on all drones.	Simplifies GST compliance for drones, removes confusion. Likely to reduce tax burden on many drone-manufacturers & users.
Q3. Bricks	There is a special composition scheme for “bricks (other than sand lime bricks)” since April 2022: GST @ 6% (without ITC) or 12% (with ITC), threshold Rs. 20 lakh. For sand lime bricks specifically, the recommended rate is being reduced from 12% → 5%. All other bricks keep the composition scheme rates.	Builders, suppliers of sand lime bricks benefit from lower rate. Others remain unchanged; need to maintain threshold & ITC eligibility.
Q4. What qualifies as “individual health and life insurance” services exempt	Exempt supply includes health & life insurance services provided to individuals, or individuals + family—not group or collective schemes.	Group insurance won’t get the exemption; only policies covering individuals/families (non-group) will. Insurers must classify accordingly.
Q5. Input services exemption for insurers	While output services of individual & life insurance will be exempt, reinsurance input services are also exempt. But other inputs / input services (commissions, brokerage, etc.) — since related to exempt output—must have their input tax credit reversed.	Insurers will lose ITC on many input costs (unless they are reinsurance). They must adjust their accounting / books accordingly.
Q6. Hotels ≤ ₹7,500/unit/day accommodation	Such hotel units must charge 5% GST without input tax credit (ITC). The option to charge 18% with ITC is not available for these units.	Lower tax rate, but hotel cannot claim ITC for the inputs for these units. Affects profitability and pricing structure for small-unit hotels.
Q7. Can hotels & accommodation providers avail ITC for these ≤ ₹7,500 units?	No — no ITC is allowed for these units. The supplies are taxed at 5% without ITC.	Input expenses must be borne by the provider. Could lead to higher cost absorption or increase in rates where feasible.
Q8. 5% without ITC on beauty / physical well-being services	The 5% without ITC rate is mandatory for these services. There is no option for service providers to instead charge 18% with ITC.	Providers in beauty, salons, spas etc. must comply. Can’t structure to claim higher credit by charging higher GST. ITC decisions must reflect this.
Q9. How to handle Input Tax Credit (ITC) where 5% without ITC applies	• Inputs / services used exclusively for such 5% without ITC supplies → no ITC allowed. • If inputs are used partly for such supplies and partly for other taxable supplies, then proportionate reversal of ITC must be done under Section 17(2) of CGST Act. The 5% without ITC supply is treated similarly to an “exempt supply” for ITC reversal rules.	Businesses need to closely track usage of inputs (goods/services) across different supplies, compute proportionate ITC reversals. Increased accounting / compliance burden.
Q10. Job work in relation to bus body building	Such job work services are taxed at 18% with ITC. The Council rationalized this by aligning all “residual job work services or other manufacturing services” to 18% with ITC. The specific entry for bus body building (earlier under an entry of Heading 9988) is now subsumed.	Simplification: fewer specific entries, more consistent tax treatment. Enterprises in bus body building job work must ensure they're applying 18% and claiming ITC.
Q11. Job work services for bricks	For job work in relation to bricks that now attract 5% (for example, sand lime bricks), the job work services will also be taxed at 5% with ITC.	Ensures consistent tax treatment: if the material or good is 5%, the associated job-work also gets the lower rate (with ITC). Helps job workers.
Q12-Q14. Multimodal transport of goods	• If none of the modes is by air ⇒ rate 5% with restricted ITC (input services limited to 5% of value). • If at least one leg is by air ⇒ rate 18% with full ITC. • ITC eligibility corresponds: when rate is 5% (no air), only limited ITC of transport input services allowed. When 18%, full ITC.	Clear distinction in tax burden based on whether any part is by air. Affects quotations, contracts in transport sector. Enterprises need to segregate input claims accordingly.
Q15-Q17. Local Delivery Services via E-Commerce Operator (ECO)	• If supplier of local delivery is not required to register (Section 22(1)), then ECO is responsible under Section 9(5) to collect/pay GST. • Rate is 18% for local delivery service (regardless of whether supplier or ECO provides). • ECO is not treated as a Goods Transport Agency (GTA) just by virtue of providing local delivery services.	Businesses in e-commerce, logistics, delivery must be precise about who is the taxable supplier, who collects GST, and at what rate. Also, ITC & compliance expectations vary.
Q18. Leasing / Renting Services Without Operator	The rate for leasing/renting without operator will match the rate applied to like goods (i.e. same goods being supplied). No change has been proposed. If goods are taxed at 18%, leasing of such goods (without operator) remains 18%, etc. Exception: where goods are taxed at 40% or 5%, then leasing / renting also follows those rates.	Consistency in taxation: Helps less ambiguity. Leasing agreements need to check which rate the underlying goods are taxed at.
Q19. Leasing / Renting of Car With Operator	Such service providers now have option: either charge 5% with ITC of input services in same line of business, or charge 18% with full ITC.	Gives flexibility: service providers can choose which model suits them (cost, input credit patterns). They need to make this decision carefully based on their input cost structure and business model.

---

Broader Implications and Things to Watch Out For

1. Transition & Compliance Challenges
   Many businesses will need to update systems (billing, ERP, tax-modules) to reflect new rates, mandatory-without-ITC vs with-ITC distinctions, input credit reversals, etc.
2. Inventory & Pricing Adjustments
   As seen in the medicines example, while recalling or re-labelling old stock isn’t mandatory, ensuring correct MRP & updated pricing at retailer level is essential.
3. Clarity around “with ITC” / “without ITC”
   The changes introduce many supplies that are taxed without ITC. This can significantly affect businesses’ cost base, since they cannot recover input taxes fully (or partially).
4. Need for Proper Segregation of Transactions
   Businesses providing multiple services or goods under multiple GST treatments (some with ITC, some without; some exempt) will need stricter accounting to segregate costs, inputs, and ensure correct reversals.
5. Strategic Choices
   Some changes give optional paths (e.g. car-with-operator leasing), meaning businesses may want to model which option is more tax-efficient.
6. Regulatory Clarifications
   The FAQ itself is an example: many ambiguous areas (e.g. drones, bricks, insurance inputs, etc.) are being clarified only now, and more such clarifications / notifications may follow.