India’s GST framework in the first half of 2026 was shaped principally by the implementation of the rate rationalisation approved at the 56th GST Council meeting of 3 September 2025 and effective from 22 September 2025, and by further amendments introduced in the Union Budget 2026-27. Additional developments during the period include the Supreme Court’s ruling on online real-money gaming, changes to the GST treatment of tobacco products, continued expansion of digital compliance measures, and operational concerns relating to refund delays and input tax credit (ITC) disputes.
GST Rate Rationalisation (Effective 22 September 2025)
The 56th GST Council approved a restructuring of the GST rate schedule, replacing the five-tier system of 0%, 5%, 12%, 18%, and 28% with a four-band framework: nil, 5%, 18%, and 40%. Niche rates of 3% (gold and jewellery) and 0.25% (rough diamonds) continue to apply.
The 12% slab was largely dismantled, with goods redistributed to either 5% or 18%. Items moving to nil include UHT milk, pre-packaged paneer, Indian breads, 33 life-saving drugs, diagnostic kits, thermometers, glucometers, and school supplies. Individual life and health insurance premiums — term plans, ULIPs, endowment policies, family floater health insurance, and senior citizen plans — moved from 18% to nil. Group policies remain taxable at 18%. Retail health insurance premiums grew 21% year-on-year to approximately ₹48,952 crore by February 2026.
Goods moving to 5% include soaps, shampoos, toothpaste, butter, ghee, and bicycles. Items previously at 28% and moving to 18% include air conditioners, large televisions, dishwashers, washing machines, and small cars. The 40% rate applies to pan masala, aerated and caffeinated beverages, luxury vehicles, yachts, private aircraft, and online real-money gaming and casinos.
The restructuring simplifies the GST rate schedule by removing most supplies previously taxed at 12% and reallocating them to either the 5% or 18% rate. Businesses affected by the changes were required to update tax codes, invoicing systems, and pricing following implementation.
Union Budget 2026-27: Finance Act GST Amendments
The Finance Bill 2026 (Clauses 137 to 141) introduced five GST amendments, to take effect on notification concurrently with matching State legislation.
Intermediary services. Section 13(8)(b) of the IGST Act 2017 is omitted. That provision treated the supplier’s location as the place of supply for intermediary services regardless of the recipient’s location, with the result that Indian businesses providing brokerage, commission agency, sourcing, BPO, back-office, consulting, and ITeS to overseas clients were taxed at 18% and ineligible for export treatment. Under the amendment, the default place-of-supply rule (recipient’s location) applies. Services to overseas recipients qualify as exports at zero GST, with input tax credit refunds available on inputs. The change is estimated to resolve approximately ₹3,300 crore in pending litigation. Overseas entities providing intermediary services to Indian recipients will have GST exposure in India; for B2B transactions, the liability falls on the Indian recipient under the Reverse Charge Mechanism.
Post-sale discounts. Amendments to Sections 15 and 34 of the CGST Act remove the requirement that a discount be established by agreement before or at the time of supply and linked to the relevant invoice. The change addresses valuation disputes in distribution models where promotional discounts are determined after supply.
Export refunds. The minimum monetary threshold under Section 54(14) of the CGST Act is removed, allowing all valid export refund claims to be processed regardless of amount.
Inverted duty structure refunds. Provisional refunds of up to 90% are extended to inverted duty structure cases.
Appeal mechanism. An interim appellate mechanism is introduced pending full operationalisation of the National Appellate Authority for Advance Ruling (NAAAR). Interest on penalty amounts is waived while an appeal is pending before the first appellate authority.
Supreme Court: Online Real-Money Gaming
On 27 May 2026, a Supreme Court bench comprising Justices JB Pardiwala and R Mahadevan dismissed petitions by online gaming companies and upheld the constitutional validity of the retrospective 28% GST levy on real-money gaming platforms, applied to the full face value of bets placed rather than gross gaming revenue.
The decision confirms the validity of outstanding GST demands issued to affected operators, estimated at approximately ₹2.5 lakh crore including penalties, against companies including Dream11 and GamesKraft. The court held that the skill-versus-chance distinction does not affect the tax position where a monetary stake is involved, and treated the August 2023 GST amendments as clarificatory rather than substantive, thereby supporting retrospective application. In 2025, Parliament separately enacted a ban on real-money online gaming.
Tobacco and Pan Masala: Restructured from 1 February 2026
Under Central Tax (Rate) Notification No. 19/2025, tobacco products and pan masala moved to a flat 40% GST rate on an RSP (retail sale price) basis from 1 February 2026. Affected categories include cigarettes and cigars (HSN 2402), pan masala (HSN 2106 90 20), unmanufactured tobacco excluding leaves (HSN 2401), and other manufactured tobacco including chewing tobacco, gutkha, and zarda (HSN 2403). Bidis are taxed at 18%.
The GST Compensation Cess was abolished for most tobacco categories and replaced by central excise duty of ₹2,050 to ₹8,500 per 1,000 sticks depending on cigarette length. Pan masala is subject to an additional Health and National Security (HSNS) Cess calculated by reference to pouch weight and machine capacity. Valuation is based on the printed retail sale price.
Compliance: Refund Delays and ITC Disputes
A Deloitte survey published during this period identified GST refund delays and ITC disputes as the leading compliance concerns for Indian businesses. Trade associations in Punjab organised protests in late 2025 and early 2026 over delays in processing GST and legacy VAT refunds.
The GST Network (GSTN) introduced hard portal validations from January 2026 that block GSTR-3B filing where ITC mismatches are detected between inward supply data in GSTR-2B and the amounts claimed. GSTN also launched an offline Invoice Management System (IMS) tool enabling businesses to manage invoice acceptance, rejection, and pending decisions for GSTR-2B reconciliation outside the online portal.
GST authorities continued enforcement activity against fake invoicing and fraudulent input tax credit claims during first half of 2026, including investigations involving circular invoicing, fictitious entities, and fraudulent GST portal activity.
Sectoral Developments
Insurance. The GST exemption for individual life and health insurance introduced on 22 September 2025 remained in effect throughout H1 2026. Group insurance policies continue to be taxable at 18%.
Electric vehicles. GST on EVs remains at 5%.
Fuel. The Union government reduced central excise duty on petrol and diesel in response to rising global oil prices. Maharashtra reduced state VAT on aviation turbine fuel during the period.
Hostel accommodation. The Supreme Court held that hostel rooms let to students and working professionals as residential dwellings qualify for GST exemption under the residential dwelling provisions.
India-EU Free Trade Agreement. India and the European Union concluded a Free Trade Agreement during H1 2026. Implementation of the agreement is expected to have implications for customs duties and cross-border trade once the relevant provisions enter into force.
E-Invoicing
The 30-day Invoice Reference Number (IRN) reporting window continues to apply to taxpayers above the applicable turnover threshold. Hard portal validations from January 2026 link ITC mismatches to GSTR-3B filing eligibility.
India’s e-invoicing model is based on IRN generation at the Invoice Registration Portal (IRP) before issue. Compliance questions continue to arise around amendment handling and multi-destination invoicing.
