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The Union government launched the second phase of Goods and Services Tax (GST) reforms, branded as the GST Bachat Utsav, in late September 2025. The reform package cuts rates on hundreds of items and simplifies the tax structure to boost consumption and ease compliance for businesses.
Evolution of GST
India introduced the GST in July 2017 to replace a patchwork of central and state taxes. While the new tax unified the market, it created multiple slabs—0.25%, 3%, 5%, 12%, 18% and 28%—which complicated compliance and led to inverted duty structures. After years of lobbying by industry and recommendations from expert committees, the GST Council decided to rationalise rates and modernise the administration.
Main features of GST 2.0
- Two‑slab architecture: Most goods and services now fall under a 5% “merit” rate for essentials and an 18% “standard” rate for others. A 40% rate applies only to sin goods like tobacco.
- Reduced rates: The council slashed taxes on more than 375 items, including daily‑use products, restaurant meals and some services. Precious stones and metals have special rates of 0.25% and 3%.
- Simplified compliance: Small businesses benefit from a turnover‑based registration threshold and quarterly returns. Automated e‑invoicing and refunds reduce paperwork.
- Correction of inverted duty: Sectors such as textiles and footwear faced higher input taxes than output taxes; GST 2.0 aligns rates to remove credit accumulation.
- Technology upgrades: A new portal integrates registration, return filing and e‑way bills, while analytics identify tax evasion in real time.
Benefits and caveats
By lowering rates and streamlining procedures, GST 2.0 is expected to reduce prices for consumers, spur demand and improve the ease of doing business. Industry groups welcomed the shift towards a more neutral tax regime. However, states worry about short‑term revenue loss and demand assurances of compensation. The success of the reform will depend on timely refunds, stable IT systems and effective enforcement against evasion.
