GST 2.0 is a landmark in India’s tax journey

The Hindu Editorial Analysis
05 September 2025

GST 2.0 is a landmark in India’s tax journey

(Source – The Hindu, International Edition – Page No. – 14)

Topic : GS 3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment

Context

The move to simplify multiple GST slabs reflects a reform designed for the people.

Introduction

The 56th GST Council meeting, held on September 3, 2025, stands out as a defining moment in India’s tax history. The reforms introduced extend well beyond mere changes in rates or structures; they embody a decisive shift toward a simpler, fairer, and growth-oriented system. By aligning taxation with the broader vision of Viksit Bharat 2047, these measures signal a bold commitment to building a modern, inclusive, and future-ready economy.

Simplification of GST Structure

• Long-standing Demand
  • Both industry and consumers have called for simplification of the multiple GST slabs (5%, 12%, 18%, 28%).
• Introduction of “Simple Tax”
  • Transition to just two main rates:
    • 18% Standard Rate.
    • 5% Merit Rate (for essentials).
  • Retention of a 40% de-merit rate for select goods (luxury or harmful items).
• Transformational Impact
  • Reduces compliance burdens for businesses.
  • Enhances predictability and transparency in taxation.
  • Makes GST more citizen-friendly and easier to understand.
• Global Alignment
  • Signals the government’s commitment to global best practices in taxation.
  • Positions India as a country with a simpler, more efficient tax regime.

Relief for a range of income groups

• Household Essentials
  • Soap, shampoo, toothpaste, bicycles, and kitchenware now in 5% GST bracket.
  • Essentials like UHT milk, paneer, chapati, and paratha are exempt.
  • Packaged foods, noodles, chocolates, and beverages see rate cuts, boosting consumption and easing family budgets.
• Insurance & Social Security
  • All life and health insurance products exempt from GST.
  • Makes insurance more affordable, especially for senior citizens and low-income families.
  • Strengthens social security and increases insurance penetration.
• Healthcare Access
  • Exemptions/reductions on essential drugs, medical devices, and treatments for cancer, rare diseases, and chronic conditions.
  • Expands access to modern medicine and diagnostics.
  • Reduces financial burden on households.
• Farm Sector Benefits
  • Tractors, farm machinery, and implements taxed at just 5%.
  • Fertilizers and inputs (sulphuric acid, ammonia) moved from 18% to 5%.
  • Corrects inverted duties, reducing cultivation costs and improving farm productivity.
• Labour-Intensive Sectors
  • Reduced rates for handicrafts, marble, granite, and leather goods.
  • Stimulates domestic demand and secures employment.
  • Makes traditional industries more competitive, safeguarding livelihoods and opening new growth avenues.

Changes in critical sectors

• A major achievement is the removal of inverted duty structures in key sectors.
• Example: GST on man-made fibre and yarn cut to 5%, resolving long-standing distortions in the textile value chain.
• Expected outcomes:
  • Greater competitiveness.
  • Growth in exports.
  • Increased domestic value addition.
  • More job creation in textiles and apparel.

Rate Rationalisation in Core Sectors

• Cement GST reduced from 28% to 18%, supporting housing and infrastructure with strong multiplier effects.
• GST cuts for renewable energy devices and auto components to accelerate India’s green growth journey.
• The CII’s long-standing recommendations—including rationalisation of auto parts and relief for hospitality and wellness—have been accepted.
• These changes will harmonise markets and minimise disputes.

Institutional Strengthening

• Goods and Services Tax Appellate Tribunal (GSTAT) to be operational by year-end.
• Benefits for taxpayers:
  • Faster dispute resolution.
  • Consistent rulings.
  • Enhanced trust in the system.
• Additional process reforms include:
  • Provisional refunds for inverted duty cases.
  • Risk-based compliance checks.
  • Harmonisation of valuation rules.
• Collectively, these reduce uncertainty and compliance costs, reinforcing India’s reputation as a top business destination.

Industry Partnership and Advocacy

• Over the past eight months, CII has pushed for:
  • A two-rate GST structure.
  • Removal of anomalies.
  • Lower taxes on essentials.
  • Support for labour-intensive sectors.
  • Faster implementation of GSTAT.
• Many of these proposals have now been adopted, showing the Council’s responsiveness and partnership with industry.
• This marks a proud milestone for stakeholders who contributed constructively to the reform process.

Conclusion

Equally significant is the phased rollout of reforms from September 22, 2025, which balances revenue stability with the immediate benefits of lower tax rates for industry and consumers. This approach not only protects fiscal health but also fuels demand and investment. The announcements go beyond technical adjustments—they represent a people-centric reform that touches citizens, farmers, workers, businesses, and entrepreneurs alike. By simplifying the tax structure, reducing rates on essentials, correcting past distortions, and strengthening institutions, GST 2.0 lays a stronger foundation for India’s growth journey. The CII has pledged its support to ensure smooth implementation, wider awareness, and the seamless flow of benefits to every section of society.

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