GST Council announces major rate rationalization and trade facilitation measures

This Tax Alert summarizes the recent press release ^[1] issued by the Ministry of Finance on various recommendations made by the Goods and Services Tax (GST) Council in its 56th meeting held on 3 September 2025.

The key recommendations are:

• Rationalization of the current four-tiered tax rate structure into a two rate structure with a standard rate of 18% and a merit rate of 5%. A special de-merit rate of 40% is proposed for a select few goods and services.
• The changes in GST rates on goods (except pan masala and tobacco products) and services will be implemented with effect from 22 September 2025.
• GST Appellate Tribunal (GSTAT) will be operationalized for accepting appeals before the end of September 2025 and to commence hearing before the end of December 2025. 
• The place of supply of intermediary services will be changed from location of the supplier to the location of the recipient. 
• The requirement of establishing post-sale discount in terms of an agreement entered into before or at the time of such supply and specifically linking of the same with relevant invoices, to be omitted.
• Sanction of risk-based provisional refund to facilitate refund claims on account of zero-rated supply of goods or services. Similarly, provisional refund provisions will be introduced for refund on account of inverted tax structure. 

Comments:

• The rationalization of GST rate slabs into a dual-rate structure of 5% and 18% is aimed at and expected to simplify compliance, minimize cascading tax effects, and enhance the global competitiveness of the Indian industry.
• There has been no specific announcement on the eligibility to inverted tax refund on stock held as on the date of rate change. Circular 135 (as subsequently amended by Circular 173) limits the availability of refunds under the inverted tax structure in cases where the input and output are same but taxed at different rates at different times. Traders may therefore need to advocate for the eligibility of refunds on opening stock impacted by a downward rate revision.
• Businesses may also need to seek clarity on the refund eligibility of Compensation Cess paid on stock held prior to the rate change, where such goods no longer attract the cess.
• Treating intermediary services as exports of services is likely to improve the competitiveness of Indian service providers and mitigate litigation around export status.
• Special emphasis on provisional refunds and extending this benefit to cases under the inverted duty structure could ease working capital pressures for businesses. 
• The operationalization of GST Appellate Tribunals should help address litigation timelines and resolution of pending disputes.
  
   ^[1] Press release dated 3 September 2025