Getting GST 2.0 To Run Like A Well-Oiled Machine

The clearance by the Goods and Sales Tax (GST) Council at the 56th GST Council meeting on September 3, 2025 of the GST reforms has transformed India’s indirect tax framework. As this writer engages with industry leaders, both big and small, the more I realise the depth of this change, which compels me to write again on the subject, unfolding its newer dimensions.

This is a historic stride in simplifying the GST. Having worked on indirect taxes for decades, I can say with confidence that the scale of reform, and its implications for consumers, micro, small, and medium enterprises (MSME), industry and the wider economy, are immense.

Consistent advocacy

From the moment the reforms were announced, the Confederation of Indian Industry (CII) moved quickly. Its advocacy on GST 2.0, since December 2024, through reports, studies, multiple governmental engagements at the central and State levels, and press releases had consistently highlighted the need for rate rationalisation, simpler classification, and reduced compliance friction. MSMEs had shared their struggles over classification disputes, high taxes on essentials, inverted duty structures and cumbersome procedures. Many of these concerns were decisively addressed on September 3.

The reforms collapse the old four-slab structure (5%, 12%, 18% and 28%) into a simpler set: a low rate of around 5% for essentials, 18% as the standard, and 40% for luxury and sin goods. Numerous daily-use items — household goods, toiletries, and small appliances — have been shifted to lower slabs. Just as important, procedural simplifications have been introduced: stock adjustments without complete relabelling, clearer classification norms, faster refunds and easier compliance for small firms.

For consumers, the benefits are direct and visible. Goods that earlier attracted 12% or 18% tax will now face 5% or less. In her interviews, the Finance Minister underlined the point that “99% of goods and services will now fall under zero, 5% or 18%, with only 1% in the luxury or sin categories”. This is not rhetoric. It means real savings for households, especially middle- and lower-income families, and will help moderate inflation.

Multiple gains

For industry, particularly MSMEs, the gains go deeper. Input costs will decline, litigation will reduce, and compliance burdens will lighten. For Fast-Moving Consumer Goods (FMCG), textiles, small vehicles, appliances, cement and farm equipment — sectors often squeezed by inverted duties or higher rates — this is structural relief. CII member-companies have already pledged to pass on these savings to consumers. In fact, several are planning to extend benefits that are over and above the GST rate reductions.

The CII is also engaging with authorities on labelling and packaging adjustments to ensure smooth transition. Awareness sessions — virtual and in person — are being conducted nationwide so that businesses of all sizes understand the reforms clearly.

These changes are not without precedent. The Economic Survey had repeatedly flagged the costs of multiple slabs, classification disputes, compliance burdens and delays in input credits. It had urged simplification and greater ease of doing business, especially for smaller enterprises. Thus, GST 2.0 is the fruition of long-standing policy analysis.

The Finance Minister herself has called the reform process “rigorous but rewarding”, noting that the Prime Minister had directed her months earlier to make GST “simplified, not simplistic”. She stressed the need to reduce litigation and enhance predictability.

Her observation that even public sector insurers are committed to passing on rate cuts to policy-holders sets an important benchmark for all industries: the purpose of reform is not just to cut rates but to deliver benefits to the final consumer.

This writer believes that the economy will see multiple ripples. A boost in consumption, especially of non-luxury goods, is very likely, particularly in rural and semi-urban areas, given the factor of high price sensitivity. Inflation will face moderation in those components of the consumer basket that were experiencing sharp increases. MSMEs will see improved margins, less capital tied up in compliance delays and a clearer tax regime. For GDP growth, projections from analysts suggest that the reforms may add over one percentage point to growth via acceleration in demand. There will be short-term revenue cost for the Centre and the States, of course (estimates put the revenue foregone in tens of thousands of crores), but these may be compensated through increased consumption, greater compliance, formalisation and fiscal buoyancy.

The work ahead

Going forward, however, implementation is everything. It must be ensured that tax cuts are not “captured” upstream and that consumers actually pay less. It must be ensured that administrative systems such as the Goods and Services Tax Network (GSTN), State revenue departments, metrology, and labelling authorities are ready to power on. Particular attention must be paid to MSMEs, as they may lack sophisticated accounting or legal advice.

The CII will work on capacity-building for smaller firms so they can adjust. We also need strong feedback loops: items that cause classification confusion must be reviewed; transition issues for unsold stocks, labelling, packaging, old inventory must be handled sensitively.

This writer sees GST 2.0 as a defining reform. The CII and its industry-members are not just applauding; they are ready to partner with the government in ensuring that the promise becomes reality. The trust between government and industry and industry and consumers is the bedrock of the success of this reform. On behalf of the CII, this writer is committed to working tirelessly so that GST 2.0 is truly delivered on the ground. We had asked for it. Now, we have to play our role in full.

The article first appeared in The Hindu, dated 24 September 2025.