GST 2.0: New Rates Simplify Tax Slabs, Boost Consumption, Counter U.S. Tariffs
In a significant move, the 56th GST Council meeting in 2025 has introduced GST 2.0 reforms, simplifying tax slabs and overhauling rates. The new structure aims to ease the burden on households, boost domestic consumption, and counter U.S. tariffs. The changes will come into effect from September 22, 2025.
The new GST rates comprise three slabs: 5%, 18%, and a special 40% rate for sin and luxury goods. Essentials like ghee, nuts, namkeen, medicines, and apparel up to ₹2,500 will become cheaper, taxed at lower rates. Conversely, luxury items such as cars, tobacco, and sugary drinks will face higher levies. Health and life insurance may also see reduced premiums by 10-15%.
The reform is expected to streamline taxation and support business growth. MSME registration will be processed swiftly in just 3 days, and refund claims under inverted duty structures will be settled within 7 days. However, the reform could lead to a revenue shortfall of ₹47,000-₹93,000 crore annually, with states demanding compensation from the Centre.
The GST 2.0 reforms aim to make essential goods more affordable and luxury items less so, potentially boosting domestic consumption. The streamlined process for MSMEs and swift refund claims also promise to support business growth. However, the revenue shortfall and state compensation remain key challenges to be addressed.
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