How the GST Council sets tax rates
When a headline says the GST Council has cut a tax rate, has the tax already changed? The announced percentage tells only part of the story. The Council recommends changes; government notifications give rates legal effect, and their effective dates tell us when those changes begin.
The process brings the Union and State Governments together under constitutional rules. Following it shows who has a say, why agreement matters and what to check after a meeting announcement.
Who sits at the table
The GST Council is a constitutional body under Article 279A, inserted by the Constitution's 101st Amendment in 2016. It was constituted on 15 September 2016. Article 279A makes the Union Finance Minister its Chairperson. The Union Minister of State in charge of Revenue or Finance is also a member.
Each State Government is represented by its minister in charge of Finance or Taxation, or another minister it nominates. These State representatives choose a Vice-Chairperson from among themselves. The CBIC Chairperson attends as a permanent, non-voting invitee.
The Council considers rates, exemptions, turnover thresholds, GST laws and other matters. Article 279A directs it towards a harmonised GST structure and national market. It sets the framework for recommendations; rates on individual products are fixed separately.
How a proposal reaches a meeting
Under the Council's business regulations, any member can submit a written proposal to the Secretary. The proposal must explain the background, constitutional authority, reasons and recommendation sought. Proposals are circulated and comments tabulated. Matters go on the agenda with the Chairperson's approval.
Technical preparation can involve the Fitment Committee. The agenda for the 31st Council meeting on 22 December 2018, for example, included issues recommended by that committee for the Council's consideration. The committee helps prepare recommendations but cannot independently bring a tax rate into force.
The Council Secretariat describes consensus as the general approach to decisions. Its regulations also provide for discussion and a show of hands, with a secret ballot if a member seeks a division. The Constitution allows decisions without unanimous agreement.
Why counting hands is not enough
Article 279A sets two different thresholds. One-half of the Council's total membership forms the quorum needed for a meeting. Passing a proposal requires at least three-fourths of the weighted votes of members present and voting.
The Centre has one-third of the voting weight. The voting States share two-thirds equally, regardless of population or revenue. The Union's two ministers share its one-third weight.
Neither side can carry a proposal alone: the Centre's one-third and the States' combined two-thirds both fall below three-fourths. With the Centre supporting a proposal, at least five-eighths, or 62.5%, of the States present and voting must support it. This percentage comes from the voting weights, so the number of States needed depends on attendance. The three-fourths threshold counts weighted votes.
From recommendation to legal rate
Under Section 9(1) of the Central Goods and Services Tax Act, 2017, the Government notifies central tax rates on the Council's recommendations for intra-State supplies within its scope. Its 20% ceiling applies only to the central component of GST. Changing a rate notification requires more than a press release announcing a recommendation.
The Supreme Court clarified the Council's constitutional role in Union of India v. Mohit Minerals Pvt. Ltd., decided on 19 May 2022. Its recommendations have persuasive value but do not bind the Union and States as primary lawmakers. Separately, the Court said the Government is bound by Council recommendations when exercising rule-making powers under the CGST and IGST Acts. Making legislation and using powers delegated by legislation are separate tasks. Taxpayers must still follow notified rates.
What changed in September 2025
At its 56th meeting on 3 September 2025, the Council recommended changes centred on a merit rate of 5% and a standard rate of 18%, with a special 40% rate for selected goods and services. The Finance Ministry's release on PIB records those headline rates. Exemptions and other special rates also apply.
CBIC's Notification No. 9/2025-Central Tax (Rate), dated 17 September 2025, implemented the central goods-rate schedule, superseding the earlier 2017 notification. It took effect on 22 September. Goa's corresponding State notification carried the same effective date. The dates show the steps from recommendation to notification to a rate taking effect.
Cement illustrates the change. Its combined GST rate fell from 28% to 18% from 22 September 2025. The central schedule lists 9%, and the corresponding State schedule also lists 9%. Together, 9% CGST and 9% SGST make the 18% intra-State rate. The full rate includes both components.
Notification 16/2025-Central Tax (Rate), also dated 17 September and effective 22 September, introduced exemptions for specified life and health insurance services where the insured is not a group, including the individual and family contracts described in its entries. The exemption excludes group cover and motor insurance.
Why some changes came later
The September transition was phased. Changes for specified pan masala and tobacco products were deferred while compensation-cess loan and interest obligations remained. Later notifications set out what followed.
Notification 19/2025-Central Tax (Rate), dated 31 December 2025, took effect on 1 February 2026. Biris moved from 28% to 18% combined GST. Pan masala, cigarettes and the other specified tobacco categories moved from 28% to 40%. The cited unmanufactured-tobacco entry excludes tobacco leaves.
A separate notification, 03/2025-Compensation Cess (Rate), reduced compensation cess on the specified entries to Nil from the same date. To understand the total tax burden, read the GST and cess changes together and check any other duties or cesses. Nil here refers to compensation cess.
Keeping track of later amendments
The notification trail continued in 2026. Notification 01/2026-Central Tax (Rate), dated 30 April and effective 1 May, amended beverage tariff-code entries in the September schedule. The changes covered classifications; there was no blanket cut in GST percentages. CBIC's copy includes a correction dated 6 May. Check that copy for the corrected codes, which came after the Council's April newsletter. These examples show why readers need to follow amendments after the original announcement.
What to check as a reader
Start with the exact goods or services covered. Check the recommendation date and the notification's effective date separately. Check whether a percentage is the central component or the combined rate, and whether an amendment or a separate cess notification changes the picture.
Finally, a lower tax rate may not produce the same percentage fall in the final price. In its September 2025 FAQ, discussing goods transport agencies, the Finance Ministry explained that an exempt service does not allow the provider to claim input tax credit. Read rates, exemptions and credit treatment together. These checks help a reader assess a tax headline.