Finance Ministry Clears Air on GST Rate Changes with Helpful FAQs
The Finance Ministry has rolled out a set of FAQs to make sense of the latest GST rate cuts under the GST 2.0 reforms. Announced recently, these updates aim to simplify taxes on everything from medicines to drones and hotel stays. If you’re wondering how these changes affect your business or daily life, here’s a straightforward breakdown of the key questions and answers. We’ve kept it simple so you can grasp the essentials without the jargon.
No Need to Recall Old Medicine Stocks for MRP Changes
Worried about relabeling medicines already in the market before September 22, 2025? The National Pharmaceutical Pricing Authority (NPPA) says you don’t have to recall or restick labels on existing stocks. Manufacturers and marketing companies just need to issue updated price lists in Form V or VI to dealers, retailers, and state controllers. This reflects the new GST rates and revised Maximum Retail Price (MRP). The catch? They must ensure retailers stick to the new prices. This move eases the burden on the pharmaceutical supply chain amid GST reforms.
All Drones Now Get a Flat 5% GST Rate
Drones used to face GST rates of 5%, 18%, or even 28%, depending on the type. Good news for drone enthusiasts and businesses: The 56th GST Council has set a uniform 5% GST rate on all types of unmanned aircrafts, including those for hobby, commercial, or industrial use. This GST rate cut on drones makes them more affordable across the board.
Bricks Stick to Current Rates, Except One Type
Bricks aren’t seeing major shakes in GST rates. Most types, like clay bricks, remain at 6% without Input Tax Credit (ITC) or 12% with ITC, under the special composition scheme with a Rs 20 lakh threshold. The exception? Sand lime bricks now drop from 12% to 5% GST. This tweak in GST on bricks helps construction folks dealing with specific materials.
Exemptions Cover Individual Life and Health Insurance Policies
The new exemptions apply to individual life and health insurance services from insurers to non-group policyholders. This includes policies for a single person or a family. Group insurance stays taxable. It’s a relief for everyday folks relying on personal health insurance plans under the latest GST updates.
Insurers Get Partial Relief on Inputs for Exempt Services
Insurers can now skip GST on reinsurance services as an input. However, they’ll need to reverse ITC on other inputs like commissions or brokerage since the output (exempt insurance) requires it. This balances the books for insurance companies navigating GST exemptions.
Budget Hotel Rooms Locked at 5% GST Without ITC Choice
Hotels offering rooms up to Rs 7,500 per unit per day must charge 5% GST without any ITC. No option to switch to 18% with ITC here—it’s mandatory. This rule keeps affordable stays simple but limits tax credits for smaller hotels in the hospitality sector.
No ITC for Low-Cost Hotel Supplies
Tying into the above, hotels can’t claim ITC on inputs for those Rs 7,500-or-less rooms since the 5% GST rate comes without ITC benefits. It’s all about streamlining GST on hotel accommodation services.
Beauty Services Fixed at 5% GST, No Opt-Out
Salons and spas providing beauty or physical well-being services? You’re stuck with the mandatory 5% GST rate without ITC. Forget choosing 18% with ITC—this GST rate rationalization locks it in for consistency.
Handling ITC When GST is 5% Without It
If your services fall under 5% GST without ITC, you can’t claim credit on inputs used only for those services. For mixed-use inputs, reverse the proportionate ITC as if it’s an exempt supply, per Section 17(2) of the CGST Act. This ITC reversal rule helps service providers stay compliant during GST changes.
Bus Body Building Job Work Now at 18% with ITC
Job work for bus body building attracts 18% GST with full ITC. The recent rationalization folded it into the general 18% rate for manufacturing services, simplifying things for auto sector players.
Brick Job Work Matches Brick GST Rates
For job work on bricks taxed at 5% GST (like sand lime bricks), the service itself gets 5% GST with ITC. It aligns neatly with the base material’s rate.
Multimodal Goods Transport: 5% or 18% Based on Air Use
Multimodal transport—using at least two modes like road and rail—gets 5% GST with restricted ITC (only on transport inputs up to 5% value) if no air leg is involved. Add air travel? It jumps to 18% GST with full ITC. This GST on multimodal transport makes logistics clearer for shippers.
Limited ITC Even If Supplier Charges More on Non-Air Transport
For 5% multimodal transport without air, you can claim ITC on goods transport inputs up to 5% of the value, even if the supplier billed higher GST. Other inputs? No dice on ITC.
Air in the Mix Means Full 18% and ITC for Multimodal
When multimodal transport includes an air leg, pay 18% GST and enjoy full ITC on all inputs and services. It’s a boost for complex logistics involving flights.
E-Commerce Operators Pay GST on Local Deliveries
Local delivery services via e-commerce operators (ECOs), where the supplier isn’t registered under Section 22(1), fall under Section 9(5). The ECO foots the GST bill here, easing things for small delivery folks.
Local Delivery Services Taxed at 18% GST
These e-commerce local delivery services carry an 18% GST rate, standard for such operations.
ECOs for Local Delivery Aren’t GTAs
E-commerce operators handling local delivery—whether providing or facilitating it—don’t count as Goods Transport Agencies (GTAs). This carve-out avoids extra GTA-specific taxes.
Leasing Without Operator Matches Goods’ GST Rate
Renting or leasing goods without an operator (like cars or machines) gets the same GST rate as the goods themselves. No changes here: 18% for most cars, 40% or 5% for specific motor vehicles. It keeps GST on leasing services straightforward.
Car Leasing with Driver: Choose 5% or 18% GST
Leasing a car with an operator (think driver included)? Providers can now pick 5% GST with ITC limited to same-line input services, or 18% with full ITC. This flexibility helps rental companies optimize under GST reforms.
These FAQs from the Finance Ministry cut through the confusion on GST rate cuts, making compliance easier for businesses and consumers alike. For the full official details, check the ministry’s site. Stay tuned for more updates on GST 2.0 as they roll out!
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