GST 2.0 Reforms: Simplifying India’s Tax Regime

1.Simplified GST Structure:

• GST 2.0 replaces the earlier four-tier GST structure (5%, 12%, 18%, and 28%) with a simplified two-rate system — 5% (merit rate) for essential goods and 18% (standard rate) for most other items. Additionally, a 40% demerit rate has been introduced for luxury, sin, and demerit goods such as tobacco, pan masala, and high-end products.
• This corrects the inverted duty structure, simplifies compliance, and reduces disputes.

2.Key Rate Revisions:The Council recommended significant reductions in GST rates across a wide range of goods and services.

• • Tax Relief for the Essential Goods:
    • Essential goods such as Ultra-High Temperature (UHT) milk, paneer, and Indian breads now carry nil GST.
  • Consumer Goods: 
    • GST on small cars, TVs, air conditioners, cement, and auto parts has been reduced from 28% to 18%. GST on renewable energy devices has been reduced from 12% to 5%. 
      • These cuts are expected to stimulate manufacturing, promote green energy adoption, and boost domestic demand.
  • Healthcare: 
    • Full GST exemption on individual life and health insurance policies. 
    • GST on 33 lifesaving drugs has been reduced from 12% to nil.
    • GST on three critical drugs used for cancer and rare diseases has been reduced from 5% to nil, strengthening healthcare access.

• • Support for Agriculture and Rural Sectors: 
    • Machinery like tractors, harvesters, and composters: GST reduced from 12% to 5%.
    • Fertilizer inputs such as sulphuric acid, nitric acid, and ammonia: GST reduced from 18% to 5%.
    • Labour-intensive goods like handicrafts, marble, and leather items: GST reduced from 12% to 5%.

• • Luxury items and sin goods 
    • The special rate of 40% will apply only on particular sin and super-luxury goods such as pan masala, cigarettes, gutka, chewable tobacco, zarda, unmanufactured tobacco and bidi, as well as goods including aerated water, caffeinated beverages, mid-size or large cars, motorcycles of engines exceeding 350cc, helicopters and airplanes for personal use, and yachts or other vessels for private use.

3.Measures for Facilitation of Trade

•  Process Reforms:

• • The GST Council has approved several process-level reforms aimed at reducing compliance burdens, streamlining procedural delays, and enhancing taxpayer convenience. For example:
    • Simplified GST Registration Scheme for Small and Low-Risk Businesses
      • To ease the registration process under GST, the Council has proposed an optional simplified registration scheme. Under this, eligible applicants will receive GST registration automatically within three working days of submitting their application.
    • Amendment in CGST Act for GST Refunds on Low-Value Export Consignments
      • The GST Council has recommended an amendment to Section 54(14) of the CGST Act, 2017 to remove the threshold limit for claiming refunds on exports made with payment of tax.
      • This change will be especially beneficial for small exporters, including those shipping goods via courier services or postal modes, by enabling them to claim GST refunds without any minimum value restriction.

• Operationalisation of the GST Appellate Tribunal (GSTAT)

• • The Goods and Services Tax Appellate Tribunal (GSTAT) is set to become functional by the end of September 2025 for accepting appeals, and begin hearings by the end of December 2025.