Most useful GST Council decisions: Taxes slashed on cancer drugs, insurance, cars

India’s GST Council, chaired by Finance Minister Nirmala Sitharaman, announced sweeping tax reforms on 3 September 2025, aimed at reducing costs for households, boosting healthcare affordability, and stimulating economic growth. The 56th GST Council meeting approved a simplified two-tier tax structure of 5% and 18%, eliminating the 12% and 28% slabs, with a new 40% slab for luxury and sin goods.

Key decisions comprise slashing GST on 33 life-saving cancer drugs to 0%, exempting health and life insurance premiums, and lowering taxes on small cars and motorcycles. These changes, effective from 22 September, coincide with Navratri and aim to ease financial burdens ahead of the festive season.

Healthcare: Relief for patients

In a significant move for public health, the GST Council has reduced the tax on 33 life-saving drugs, including cancer treatments like Daratumumab and Atezolizumab, from 12% to 0%, and three critical medicines for cancer and rare diseases from 5% to nil. Additionally, GST on most other drugs and medical devices has been cut from 12% to 5%. These reductions are expected to save patients thousands to lakhs annually, easing the financial burden of long-term treatments.

The exemption of GST on all individual health and life insurance policies, including family floater and senior citizen plans, aims to make insurance more affordable, aligning with the government’s “Insurance for All” vision by 2047. Industry experts, such as Sudarshan Jain of the Indian Pharmaceutical Alliance, hailed the reforms as a step toward accessible healthcare.

Automobiles: Small cars get cheaper

The GST Council has lowered the tax on small cars (petrol ≤1200cc, diesel ≤1500cc, and length ≤4000mm) and entry-level motorcycles (≤350cc) from 28% to 18%, eliminating the additional compensation cess. This is expected to reduce prices for models like the Hyundai Creta, Volkswagen Virtus, and Mahindra Thar Roxx, making them more affordable for middle-class buyers. Larger cars and premium motorcycles, however, will face a new 40% GST rate, which simplifies the tax structure but increases costs for luxury vehicles.

Industry leaders, including Mahindra & Mahindra’s Rajesh Jejurikar, welcomed the changes, noting they will boost demand and support first-time buyers. The reforms also address inverted duty structures in auto parts, setting a uniform 18% rate.

Broader reforms: Impact on essentials

Beyond healthcare and automobiles, the GST Council has slashed taxes on daily essentials to promote affordability. Ultra-high temperature milk, paneer, and all Indian breads like roti and paratha are now GST-free. Food items such as namkeen, bhujia, pasta, chocolates, and butter have been reduced from 12% or 18% to 5%. Consumer durables like air-conditioners, televisions, and dishwashers also see a tax cut from 28% to 18%.

Finance Minister Sitharaman said that these reforms, part of “GST 2.0,” focus on the ordinary citizen and middle class, with Prime Minister Narendra Modi describing them as a “double dose of support and growth.” The changes are projected to increase GDP by 0.2-0.3% in 2025-26, though concerns remain about a potential revenue loss of ₹48,000 crore.

Economic and social implications: A balancing act

The reforms aim to boost consumption by putting more disposable income in the hands of consumers, particularly in rural and middle-class households. Commerce Minister Piyush Goyal noted that lower taxes on farm equipment and cement will support farmers and aspiring homeowners. However, the introduction of a 40% slab for sin goods like tobacco and luxury items reflects a nudge toward discouraging harmful consumption.

Some states, such as Kerala, expressed concerns about the revenue impacts, but the unanimous decision signals broad support. Analysts warn that the fiscal strain could reach ₹2 lakh crore by 2027, necessitating careful management. Despite this, Finance Minister Sitharaman remains focused on simplifying compliance and sustaining economic momentum.

Economic observers wondered how the GST reforms would help fight the punitive tariffs that US President Donald Trump has slapped on India.

This is a developing story and will be updated as new details emerge.