GST 2.0: A game-changing overhaul for India's tax system

GST

By Dipti Nayak   

The Goods and Services Tax (GST) Council will convene its 56th meeting in New Delhi on 3–4 September 2025, a session that will mark the most significant overhaul of GST since its introduction in 2017. With agenda items ranging from tax rate rationalisation to compliance reforms, this meeting will lay the foundation for “GST 2.0.”

Why This Meeting Matters

Unlike routine Council gatherings, which often revolve around piecemeal fixes, the September 2025 session carries the imprimatur of reform at a systemic level. The government has hinted that the decisions could pave the way for a simplified, more predictable GST structure designed to stimulate consumption ahead of the festive season, while also easing compliance burdens on small and medium enterprises.

Adding to the momentum, the Hon’ble Prime Minister Narendra Modi, in his Independence Day address this year, emphasised the need for a new phase of GST reforms, effectively framing the Council’s deliberations as part of a larger political and economic roadmap. The timing is also crucial: with the global economy facing uncertainties, India is positioning itself as a resilient growth story, and a more business-friendly GST framework would strengthen that narrative.

The Roadmap Under Deliberation 

1. Convergence Towards a Dual-Rate Structure - At the heart of the meeting is the proposal to compress the four major slabs—5%, 12%, 18%, and 28%—into a two-rate structure:

• 5% for essentials
• 18% as the standard rate
• 40% rate reserved for luxury and sin goods like high-end automobiles and tobacco

2. Relief for Food and Textiles - All food and textile items may be moved into the 5% slab, offering much-needed clarity to industries that have often faced interpretational disputes. This could also bring down consumer prices in two of the most sensitive segments of household expenditure.

3. Insurance Premiums Under Policy Lens - Currently, both life and health insurance premiums attract 18% GST. The Council is expected to debate whether this should be reduced or even fully exempted. Lowering tax on insurance is seen as a way to encourage wider coverage, aligning with the government’s policy push for social security and healthcare access.

4. Correcting Anomalies in Cement and Services - Two more proposals under discussion are:

* Cement: Reducing GST from 28% to 18% to support housing and infrastructure projects.

* Salon and beauty services: Cutting the tax from 18% to 5%, a move that would benefit small service providers and end-users alike.

5. GST 2.0 Compliance Architecture -
The Council is also expected to unveil a compliance modernisation package:

* Pre-filled GST returns to mitigate errors and compliance fatigue

* Automated refund mechanisms to ease liquidity pressures for exporters and MSMEs

* Harmonised classification norms to reduce interpretational disputes

Collectively, these interventions are positioned to lower transaction costs, enhance ease of doing business, and strengthen institutional trust in GSTN’s digital backbone.

6. Compensation Cess - Another critical point of debate will be the future of the compensation cess. Originally designed to make up for states’ revenue losses in the early years of GST, the cess now primarily funds repayment of borrowings made during the pandemic. The Council will need to decide whether it should be continued, modified, or phased out.

Stakeholder Implications

For Consumers:
If the proposals are implemented, households could benefit from:

* Lower costs on food, clothing, and housing

* Reduced insurance premiums

* Cheaper personal services like salons

For Businesses and MSMEs:

- Fewer tax slabs – fewer classification disputes

- Digital reforms – lower compliance burden

- Faster refunds – improved working capital management

The Obstacles

Despite the ambitious agenda, several risks remain:

1) Revenue Trade-off: States may resist aggressive rate cuts unless assured of compensation.

2) Benefit Pass-Through: Lower GST rates must actually translate into lower consumer prices, which requires monitoring.

3) Technology Readiness: GSTN must be robust enough to handle new features like pre-filled returns and automated refunds.

4) Political Consensus: With 31 members representing diverse states, achieving unanimity is often difficult.

If consensus is achieved, reforms could be rolled out before Diwali 2025, in time to boost demand during the festive season. This timeline would not only provide immediate consumer relief but also signal a new phase of predictability and simplicity in India’s indirect tax system.

India’s Tax Regime at Crossroads

The September meeting is not just another policy exercise—it could well be the beginning of GST 2.0. A streamlined rate structure, relief for critical sectors, and digital-first compliance reforms have the potential to reshape GST into a more efficient, transparent, and business-friendly regime. The decisions taken will resonate far beyond the festive season, influencing India’s growth trajectory and its standing as a competitive global economy.

(Dipti Nayak, Director at Bhuta Shah & Co LLP.)

Views are personal and do not represent the stand of this publication.