GST 2.0

GST 2.0 simplifies tax slabs, lowers rates on essentials, boosts consumption, and encourages investment across key sectors.

GST 2.0: Tax Reform for Consumers and Industry

Syllabus: Economic Development & Taxation (UPSC GS III)
Source: The Hindu

Context

The Government of India launched GST 2.0 on September 22, 2025, called the “GST Bachat Utsav” by the Prime Minister.
The reform aims to rationalise tax slabs, reduce rates on over 375 items, and simplify compliance, boosting consumption and investment.

What is GST 2.0?

A major reform under the Goods and Services Tax (GST) regime introduced in 2017.
Focuses on rate rationalisation, consumer relief, and simpler compliance.

Aim

Increase household disposable income to spur consumption.
Reduce tax litigation by placing similar goods in the same tax slab.

Key Features

Rate Rationalisation: Broad two-slab structure:
- 5% (merit rate) – Essential items
- 18% (standard rate) – Most goods/services
- 40% (demerit goods) – Sin and luxury items
Consumer Relief: Exemptions or lower tax on food, health & life insurance, and wellness services.
Simplified Compliance: Tech-driven registration, pre-filled returns, and automated refunds (90% provisional in IDS cases).
Correction of IDS Mismatch: Align related goods in same slab to reduce input-output tax conflicts.
Boost to Industry: Reduces costs in textiles, agriculture, construction, and services, encouraging investment.

Important Slab Changes

0.25%: Rough diamonds, precious stones
1.5%: Cut and polished diamonds
3%: Precious metals – gold, silver, pearls
5%: 516 items – food, agricultural machinery, medical devices, hydrogen vehicles, insurance, salons
18%: 640 items – machinery, chemicals, paints, automobile parts, small cars/bikes
40% (Demerit Rate): Pan masala, tobacco, aerated drinks, luxury yachts, private aircraft, big cars/bikes
Special Case – Bricks: 6% (no ITC) / 12% (with ITC)

Significance

For Consumers: Lower taxes on essentials, more disposable income.
For Industry: Reduced costs, simplified compliance, better investment climate.
For Government: Streamlined tax collection, fewer disputes, and higher efficiency.