GST Rate Revisions for Services: What Businesses Need to Know

Posted by Written by Archana Rao Reading Time: 2 minutes

India’s GST Council has introduced a new two-rate framework for services in 2025 – 5 percent without ITC or 18 percent with ITC. Cheaper insurance, wellness, and job work services bring consumer relief, while higher GST on petroleum, outsourcing, and transport will impact businesses.

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The GST Council has moved services to a clearer two-rate framework – either 5 percent without or with limited input tax credit (ITC) – or 18 percent with ITC. This distinction creates a new indirect tax approach: consumer-facing services, where ITC is less relevant, are shifted to 5 percent to make them affordable, while business-to-business (B2B) and capital-intensive sectors remain at 18 percent, preserving ITC benefits.

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GST relief for job work services

Lower GST on manufacturing-linked job work

Several manufacturing-linked job work services will now enjoy lower GST rates. Job work for umbrellas, printing, bricks, pharmaceuticals, and leather has been reduced from 12 percent to 5 percent, while retaining ITC. This directly lowers outsourcing costs for industries reliant on contract processing.

Higher GST on residual outsourcing services

However, residual job works not covered under specific categories have moved upward from 12 percent to 18 percent, making general outsourcing costlier.

GST on on local delivery and digital platforms

GST treatment of delivery services at 18%

Local delivery services continue to attract 18 percent GST with ITC.

E-commerce operators (ECOs) and GST compliance

A notable change is the inclusion of such services under Section 9(5) of the CGST Act when routed through e-commerce operators (ECOs) like Swiggy Genie, Borzo (previously known as We Fast), and Uber Courier. In such cases, the platform, not the small delivery agent, will bear GST compliance. This eases the burden on unregistered or small service providers, while ensuring tax consistency across digital intermediaries.

Key GST rate reductions on essential services

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A wide range of essential services have shifted from 12 percent to 5 percent, benefiting end consumers. These include goods carriage insurance, effluent treatment, biomedical waste disposal, and cinema tickets priced at INR 100 or less. Budget hotel accommodation now attracts 5 percent GST, though without ITC, limiting benefits for the hospitality industry. Beauty and wellness services, such as salons and gyms, have also moved to 5 percent without ITC, reducing costs for customers but tightening business margins.

GST hike on petroleum and specialized services

On the other hand, specialized petroleum-related services, including technical, professional, and support activities in exploration and drilling, have moved up from 12 percent to 18 percent, aligning with the standard GST rate while preserving ITC access.

GST rate changes for transport services

Transport of goods has been restructured with a dual-rate option: 5 percent without ITC or 18 percent with ITC. This applies to goods transport agencies (GTA), container transport by rail (other than Indian railways), petroleum transport by pipeline, and multimodal transport. The shift from 12 percent to 18 percent for ITC-eligible options raises costs for businesses relying on credit, while maintaining a low-cost option for those outside ITC chains.

Balancing consumer relief and business costs

The revisions aim to simplify service taxation while balancing affordability with revenue needs. Consumers benefit from cheaper insurance, wellness services, and budget entertainment, while sectors like petroleum exploration and generic job work face higher GST outgo.

For businesses, the availability or restriction of ITC remains the key determinant of actual cost impact under the new framework.

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