GST Rate Rationalisation May Finally Get Green Light in August 2025
After an 8-month pause since the last meet in December 2024, the Council may finally take up structural reforms, starting with tax slab simplification and changes to GST on insurance.
Let’s break down what taxpayers and businesses should expect.
What is GST Rate Rationalisation?
GST rate rationalisation refers to restructuring the current five-rate system (0%, 5%, 12%, 18%, and 28%) into a simpler structure, with fewer slabs and fewer classification disputes.
Proposed Changes:
| Existing Slabs | Proposed Structure |
|---|---|
| 0%, 5%, 12%, 18%, 28% | 0%, 5%, 15%, 28% (tentative) |
| Compensation Cess | May be merged with rates |
The major idea is to merge the 12% and 18% slabs into one standard slab, likely around 15% or 16%. This will:
- Reduce classification confusion
- Lower litigation
- Simplify compliance for businesses
Key Issues Expected in 56th GST Council Meeting
Here’s what’s on the agenda:
1. GST Rate Rationalisation (Focus Keyphrase)
- The GoM on rate rationalisation was tasked to submit recommendations
- As of July 2025, the final report is pending
2. GST on Health and Life Insurance
| Policy Type | Current GST | Proposed GST |
|---|---|---|
| Health Insurance (sum insured ≤ ₹5 lakh) | 18% | 0% (Exempt) |
| Health Insurance (> ₹5 lakh) | 18% | 18% (No change) |
| Term Life Insurance | 18% | 0% (Exempt) |
3. Compensation Cess Restructuring
- Currently levied on goods like luxury cars, tobacco, aerated drinks
- Valid till 31 March 2026 as per GST (Compensation to States) Act
This move will help simplify invoicing, reduce dual compliance and make GST more transparent.
4. GST Appellate Tribunal (GSTAT) Rollout
- Council likely to announce timelines and locations of benches
- Appointment of members may also be notified
- Will reduce judicial pendency in high-stakes GST disputes
Why This Matters for Businesses
- Businesses in the 12% or 18% bracket may see tax rate changes
- ERP and invoicing software may need updates
- Insurers may reprice health and life policies
- Manufacturers of sin/luxury goods should monitor cess restructuring
Action Item: Keep GST classification reviews ready. If your supply currently attracts 12% or 18%, track if the merged slab affects your pricing or ITC impact.
Expert View
Krishan Arora, Partner at Grant Thornton Bharat, notes:
“This is a chance to fix structural inefficiencies and build long-term certainty into India’s indirect tax regime.”
He’s right. Frequent notifications and dual rates on similar goods have often triggered litigation. A cleaner structure will benefit not just businesses but also the revenue department by improving compliance.
Summary
The 56th GST Council meeting in August 2025 is likely to approve GST rate rationalisation by merging 12% and 18% slabs. Key proposals include GST exemption on basic health and term life insurance, restructuring compensation cess, and setting up GST Appellate Tribunals.
FAQs on GST Rate Rationalisation
Q1. What is the goal of GST rate rationalisation?
To simplify the GST structure, reduce classification disputes, and improve ease of doing business.
Q2. Will GST be removed on all insurance?
No. Only basic health insurance (≤ ₹5 lakh) and term life insurance are likely to be exempt.
Q3. When will the new slabs apply?
Subject to Council approval in August, implementation may be phased from Q4 FY2025–26 onwards.
Final Words
If you’re a business owner, consultant, or insurer — now’s the time to plan for GST rate rationalisation. Efiletax will track all official announcements and help you stay compliant with the upcoming changes.