The Central Board of Indirect Taxes and Customs (CBIC) has released a series of Frequently Asked Questions (FAQs) to provide clarity and guidance on the GST rate rationalization and other significant reforms. These changes, stemming from the recommendations of the 56th GST Council meeting, impact a wide range of goods and services. This article provides a detailed breakdown of the key clarifications for businesses and taxpayers.
I. Compliance & Transition: Easing the Shift
The transition to new GST rates often presents challenges, particularly for existing stock. The CBIC has addressed key concerns regarding re-labeling and price compliance.
Re-labeling of Unsold Stock
The old rule: An earlier advisory from the Department of Consumer Affairs dated September 9, 2025, required manufacturers, packers, and importers to re-label unsold stock with the revised retail sale price (RSP) by stamping, stickering, or online printing. This also mandated public advertising in two newspapers.
The new advisory: A superseding advisory dated September 18, 2025, has significantly simplified this process. The requirement to advertise in newspapers has been waived.
The revised process: Manufacturers, packers, and importers must now voluntarily affix an additional revised price sticker on unsold packages manufactured before September 22, 2025. This sticker must not obstruct the original price declaration. They are also required to send circulars to their wholesale dealers and retailers, with a copy to the Director, Legal Metrology of the Central Government and all State/UT Controllers. This revised process places a strong emphasis on ensuring price compliance at the retailer level through all possible channels, including electronic, print, and social media.
Price Compliance for Medicines
The National Pharmaceutical Pricing Authority (NPPA) has clarified that recalling, re-labeling, or re-stickering of medicines already in the supply chain prior to September 22, 2025, is not mandatory.
Instead, manufacturers and marketing companies must issue revised or supplementary price lists in Form V/VI to their dealers, retailers, and the State Drug Controllers. The responsibility lies with the manufacturers to ensure that price compliance is met at the retail level.
II. New GST Rates for Goods: Key Notifications & Changes
The new GST rates are a result of a rate rationalization exercise aimed at simplifying the tax structure. The CBIC has issued several new notifications to give effect to these changes.
Goods Rate & Exemption Notifications
Goods Rate Changes: The new CGST rates on goods are detailed in Notification No. 9/2025- Central Tax (Rate) dated September 17, 2025. This notification supersedes the earlier comprehensive Notification No. 1/2017- Central Tax (Rate).
Exempted Goods: The list of goods now exempted from CGST can be found in Notification No. 10/2025-Central Tax (Rate) dated September 17, 2025. This new notification supersedes the previous Notification No. 2/2017- Central Tax (Rate).
Handicrafts: The GST rates for handicrafts have been updated in Notification No. 13/2025-Central Tax (Rate), which amends the previous Notification No. 21/2018- Central Tax (Rate).
Compensation Cess: Changes to the compensation cess rates are notified through Notification No. 2/2025-Compensation Cess (Rate), which amends the original Notification No. 1/2017-Compensation Cess (Rate).
Petroleum Operations: The GST rate on goods imported for petroleum operations has been clarified in Notification No. 11/2025- Central Tax (Rate) dated September 17, 2025.
Bricks: The special composition scheme for bricks remains unchanged, except for sand lime bricks. This is clarified in Notification No. 14/2025- Central Tax (Rate) dated September 17, 2025. The GST rate for sand lime bricks has been reduced from 12% to 5%. All other bricks (excluding sand lime bricks) continue to be taxed under the special composition scheme at 6% without ITC or 12% with ITC, with a threshold limit of ₹20 lakhs instead of the general ₹40 lakhs.
Specific Goods Clarifications
Drones: The GST Council has recommended a uniform 5% GST rate on all types of unmanned aircrafts (drones), which was previously fragmented at 5%, 18%, and 28% depending on the drone’s use and features.
Bricks: As mentioned, only sand lime bricks have seen a rate reduction from 12% to 5%. The special composition scheme for other bricks remains at 6% without ITC or 12% with ITC.
III. GST on Services: A Detailed Look
The FAQs have provided crucial clarifications on several service-related sectors, including insurance, hospitality, wellness, and transportation.
Insurance and Input Tax Credit (ITC)
Individual Life & Health Insurance: Services of individual health and life insurance business provided to a single person or their family are now exempt from GST.
Input Services & ITC Reversal: Insurers will now have to reverse the ITC on most of their input services, such as commissions, brokerage, and other related expenses, because their output services are now exempt. However, an exception is made for reinsurance services, which will also be exempted.
Hospitality and Wellness Services
Hotel Accommodation: Hotels supplying units of accommodation valued at less than or equal to ₹7,500 per unit per day must charge GST at 5% without ITC. This is a mandatory rate, and the option to charge 18% with ITC is not available for these specific supplies. Consequently, these hotels cannot avail ITC on inputs related to these exempted services.
Beauty & Physical Well-being: The GST rate of 5% without ITC for beauty and physical well-being services is also mandatory. Service providers do not have the option to charge 18% with ITC.
Handling ITC for 5% (without ITC) Rates
Exclusive Use: If goods or services are used exclusively for making a supply that is taxable at 5% without ITC, the service provider shall not take the credit of input tax.
Partial Use: If inputs are used for both 5% (without ITC) supplies and other taxable supplies, the service provider must reverse proportionate ITC as per the provisions of Section 17(2) of the CGST Act, 2017. This is treated as if the supply at 5% without ITC is an exempt supply.
IV. GST on Transport and Logistics
The CBIC has brought much-needed clarity to the taxation of transportation services, including job work, multimodal transport, and local delivery.
Job Work Services
Bus Body Building: Job work services related to bus body building are now taxable at a uniform 18% with ITC. These services, which were previously covered under a specific entry, have now been aligned with all other residual job work and manufacturing services.
Bricks: Job work services for bricks that attract a GST rate of 5% (e.g., sand lime bricks) will also be taxable at a rate of 5% with ITC.
Multimodal Transport of Goods
Without Air Transport: If a multimodal transport service does not involve air transport, it will be taxable at 5% with restricted ITC. The ITC is only allowed on input services of transportation of goods, limited to 5% of the value.
With Air Transport: If at least one leg of the transport is by air, the GST rate will be 18%, and the service provider can claim full ITC on all inputs or input services.
Local Delivery Services via E-Commerce Operators (ECO)
Liability to Pay GST:
If a registered person directly provides local delivery services, they are liable to pay GST at 18%. If an unregistered person supplies these services through an e-commerce operator (ECO), the ECO is liable to pay GST at 18% under Section 9(5) of the CGST Act. If a registered person supplies these services through an ECO, the supplier themselves is liable to pay the GST.
Classification: An ECO, whether providing or facilitating local delivery services, is not classified as a Goods Transport Agency (GTA).
V. Taxation of Leasing & Rental Services
The FAQs also provide clear guidance on the tax treatment of leasing and renting services.
Leasing without an Operator: The GST rate for leasing or renting services without an operator will continue to be the same as the GST rate on the supply of like goods. For example, leasing a car that has an 18% GST rate on its sale will also attract 18% GST on its leasing service.
Leasing with an Operator: Suppliers of services for leasing or renting a car with an operator (e.g., with a driver) now have a dual-rate option: They can charge 5% with ITC of input services in the same line of business. Alternatively, they can charge 18% with full ITC.
This article serves as a ready reckoner for the key clarifications issued by the CBIC, helping businesses to navigate the new GST landscape with greater confidence. It’s crucial for all stakeholders to be aware of these changes and ensure their systems and processes are updated for smooth compliance.