Source: The post GST 2.0 simplifies taxes and strengthens economy has been created, based on the article “GST 2.0 is a landmark in India’s tax journey” published in “The Hindu ” on 5 September 2025. GST 2.0 simplifies taxes and strengthens economy.
UPSC Syllabus Topic: GS Paper 3- Indian Economy and issues relating to planning, mobilisation of resources, growth, development and employment.
Context: September 3, 2025, the GST Council unveiled GST 2.0. It simplifies slabs, fixes anomalies, and strengthens processes to support a simpler, fairer, growth-oriented system aligned with Viksit Bharat 2047. The decisions answer long-standing demands for clarity, affordability, and faster dispute resolution.
For detailed information on Goods and Services Tax (GST) 2.0 read this article here
What changed in the GST structure?
1. Two-rate “Simple Tax” with a de-merit slab: The Council adopted 18% Standard and 5% Merit rates, with a 40% de-merit rate for a select few goods. This transparent design simplifies slabs and advances a simpler, fairer, growth-oriented approach.
2. Compliance and predictability: The structure reduces compliance burdens, improves predictability for business, and is more citizen-friendly. It signals alignment with best global practices.
3. Phased rollout for stability: Reforms are phased from September 22, 2025. Sequencing preserves revenue stability while enabling immediate benefits that stimulate demand and investment.
How do households, health, and insurance benefit?
1. Lower GST on daily-use items: Soap, shampoo, toothpaste, bicycles, and kitchenware are in 5%. UHT milk, paneer, chapati, and paratha are exempt. The Council has reduced GST on packaged foods, noodles, chocolates, and beverages. The cuts lower prices and support higher consumption while easing costs for households across income groups.
2. Insurance now GST-exempt: All life and health insurance are exempt. This improves affordability for senior citizens and low-income families, raises insurance penetration, and strengthens social security.
3. Healthcare cost relief: Exemptions and reductions cover essential drugs, devices, and treatments for cancer, rare diseases, and chronic conditions. Wider access to modern medicine and diagnostics eases financial burdens.
How are agriculture and labour-intensive sectors supported?
1. Cheaper inputs and machinery: Tractors and farm machinery attract 5%. Fertilisers and inputs like sulphuric acid and ammonia move from 18% to 5%. The reforms correct earlier inverted duty structures. This change lowers cultivation costs and supports higher farm productivity.
2. Boost for traditional industries: Handicrafts, marble, granite, and leather goods face reduced rates. This stimulates demand, secures employment, and enhances competitiveness.
3. Livelihoods and growth: By making traditional sectors more competitive, the reforms safeguard livelihoods while opening new growth avenues.
Which critical sectors saw anomaly corrections?
1. Textiles value chain fixed: Man-made fibre and yarn now attract 5%, removing a long-standing distortion. This is expected to lift competitiveness, exports, jobs, and domestic value addition in textiles and apparel.
2. Construction costs ease: Cement shifts from 28% to 18%. This supports housing and infrastructure with multiplier effects.
3. Green and services push: Cuts for renewable energy devices and automotive components accelerate green growth. Acceptance of recommendations, from rationalising auto parts to relief for hospitality and wellness services, harmonises markets and reduces disputes.
What institutional and process changes will build trust?
1. GSTAT by year-end: The Goods and Services Tax Appellate Tribunal will be operational by year-end, enabling faster dispute resolution, consistent rulings, and greater trust.
2. Simpler, risk-based administration: Provisional refunds for inverted duty structures, risk-based compliance checks, and harmonised valuation rules cut uncertainty and compliance costs, reinforcing the ease of doing business.
3. Responsive partnership with industry: Over eight months, CII urged two-rate simplification, anomaly correction, rate cuts on essentials, support for labour-intensive sectors, and faster GSTAT. Many are adopted. This people’s reform touches citizens, farmers, workers, businesses, and entrepreneurs. CII stands ready to support implementation and awareness so benefits flow seamlessly.
Question for practice:
Discuss the key decisions of the 56th GST Council meeting and their impact on households, agriculture, labour-intensive sectors, and dispute resolution.
