At the heart of GST 2.0 is a sweeping rationalization of tax slabs. The Council has streamlined the structure into two rates—5% and 18%, along with 40% rate for ‘sin’ and luxury goods. Compensation cess has been done away with, except on a few tobacco and related items, as a temporary measure. This will have profound implications -- less complexity, fewer disputes and more certainty for businesses and consumers.
The true relief, however, lies in the sharp rate reductions announced across key sectors.
From roti, paneer, and khakhra to milk and nuts, the effective burden on households will now be drastically lower as many of these goods shift to exemptions or the 5% bracket.
Textiles, a mass employment sector, finally see the correction of inverted duty structures with synthetic yarns and garments down at 5%. All medicines, except those specifically exempted, and medical devices are now capped at 5%, making healthcare more affordable.
One of the boldest reforms is the complete GST exemption on individual life and health insurance policies, making insurance truly affordable and accessible for all.
The reduction of the GST rate from 28% to 18% in the case of cement would provide a much-needed impetus to the realty and construction sector.
What is laudable is the dual benefit — as consumers enjoy direct price relief, industries gain from rationalised duty structures that reduce distortions. Also, the system balances equity. Beverages loaded with sugar or caffeine, luxury SUVs, gambling, and betting now attract a hefty 40% levy, in line with global practices.
Building Trust
For businesses, especially startups and exporters, the Council has opened long-awaited doors of efficiency. A fast-track registration system, delivering automated GST registration in three working days, will cover nearly 96% of new businesses. A simplified registration scheme is also proposed to be introduced to benefit small suppliers on the e-commerce platform. Combine this with the 90% provisional refunds arising due to inverted duty structure, and India suddenly looks far more business friendly. Liquidity concerns will now find speedy redress and relieve the businesses, especially the MSMEs of financial stress.
Importantly, reforms also address structural irritants. The removal of Section 13(8)(b) of the IGST Act ensures that India’s IT and consulting industry can compete globally with full export status. Likewise, amendments are to be made to the law to streamline post-sale discounts through credit notes, allowing flexible market practices without unnecessary red tape.
Paradigm shift regime
The larger significance of GST 2.0 lies not just in numbers but in intent -- it underpins trust and transparency between tax administration and taxpayers. By ending compensation cess for most goods (except tobacco products) and merging it with primary rates, the Council signals that India’s tax design will shed adhocism and move towards long-term consistency.
The road map to operationalise the Goods and Services Tax Appellate Tribunal (GSTAT) by the end of 2025 promises faster, fairer dispute resolution — reducing the adversarial environment that often drains both taxpayer and exchequer resources.
Yes, challenges remain — such as ensuring that refunds are fast-tracked in practice and balancing state revenues after cess withdrawal. But on balance, the reforms reflect maturity: India’s tax administration is shifting gears from collecting more to collecting smart.
S Ramesh is managing director, Price Waterhouse & Co LLP