GST 2.0: Bold reforms set to lower prices and drive growth & inclusion

Simplified Tax Structure: One of the most impactful reforms is the move from a four-rate structure to just two main slabs — 5% and 18%. This long-awaited simplification will reduce confusion, improve transparency, and make tax planning easier for businesses and investors.

A new 40% GST rate has been introduced for luxury and sin goods, keeping essential items affordable while ensuring high-value consumption contributes more to public revenue. Lower Taxes on Essentials: To ease everyday living costs, the GST Council has shifted many mass-market goods, including toiletries, packaged foods, and small appliances, into the lower 5% bracket. This is expected to bring visible price reductions on items millions of Indians use daily.

In a landmark step, health and life insurance premiums are now fully exempt from GST, making financial protection more affordable and encouraging wider insurance adoption across the country.

Essential medicines and a wide range of educational supplies have also been exempted, reinforcing the government’s commitment to healthcare and human capital development. Smarter, Faster Administration: The administrative backbone of GST is also being strengthened. The GST Appellate Tribunal (GSTAT) is being made operational by the end of 2025, offering faster resolution of tax disputes and reducing litigation for businesses.

Additionally, a more efficient refund system has been introduced, including automated provisional refunds of up to 90% in cases involving inverted duty structures. This reform is a game-changer for exporters and manufacturers facing working capital delays.

Strong Economic Outlook

Lower GST rates on everyday goods and key services are expected to enhance affordability and purchasing power, especially for middle- and lower-income households. As costs come down, consumers are likely to spend more, providing a timely boost as the festive season approaches.

This increase in domestic demand could have a positive ripple effect across industries, from FMCG to electronics, supporting both economic growth and job creation.

With fewer tax slabs, clearer rules, and faster refunds, GST 2.0 significantly reduces compliance burdens, particularly for MSMEs and startups. The reforms remove many of the pain points that have slowed down smaller businesses in the past, giving them room to grow and thrive in the formal economy.

What’s Next?

To build on the success of these reforms, continued efforts are needed to make GST 2.0 even more efficient and inclusive. Key priorities may include:

* Maintaining a stable rate structure to give businesses confidence and reduce frequent reclassification challenges.
* Enabling certainty for businesses through faster audits/assessments and decriminalisation of the GST provisions.
* Addressing inverted duty structures in an unrestricted manner will go a long way in simplifying GST by eliminating tax cascading and promoting better adoption of GST, thereby upholding the true essence of the tax credit system under GST.

The September 2025 GST reforms mark a transformational leap in India’s tax journey and the dawn of a new era for India’s forward-looking tax system. By lowering costs, streamlining compliance, and supporting consumer demand, GST 2.0 promises to deliver real, lasting benefits to people, businesses, and the economy at large. It’s a confident step toward an inclusive and high-growth India and a clear signal that India’s tax policy is ready for the next decade of development.

(Vivek Pachisia, Tax Partner, EY India.)

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