[Opinion] GST 2.0 and the Shift Toward Consumer-Centric Growth

CA. Divya Jain & Tassu Sharma – [2026] 182 taxmann.com 5 (Article)

 1. Introduction

The Goods and Services Tax (GST) framework plays a pervasive role in India’s economy, influencing the pricing of goods and services consumed by households and businesses alike. In pursuit of the national vision of Viksit Bharat 2047, the Government has initiated a series of structural reforms to enhance efficiency, transparency, and ease of compliance within the indirect tax regime.

In the address to the nation on the occasion of the 79th Independence Day of India, Hon’ble Prime Minister Shri Narendra Modi Ji underscored the importance of tax reforms in delivering tangible economic relief to citizens. While income tax reductions effective from April 2025 were announced to support the middle class, the rationalisation of GST rates was positioned as a measure to reduce the cost burden across a broader segment of society, including low-income households.

Aligned with this vision, the 56th GST Council Meeting held on 03-09-2025 approved the framework for GST 2.0, which was subsequently implemented with effect from 22-09-2025 under the theme ‘Har Ghar Khushhali, Bachat Utsav Wali.’ This initiative represents a significant phase in the evolution of India’s indirect tax system, with a focus on simplification, rationalisation, and consumer-centric reforms.

Given that GST impacts almost every facet of daily consumption from essential goods to a wide range of services. This article seeks to examine the key features of GST 2.0 and analyse how these reforms translate into practical economic benefits for taxpayers, consumers and the broader economy.

2. Understanding GST 2.0

GST 2.0 emerges as a decisive effort to modernise India’s indirect tax system. The reform seeks to reduce tax incidence across key sectors such as education, technology, automobiles, handicrafts, healthcare, food processing, textiles, and footwear, thereby lowering costs, enhancing competitiveness, and encouraging innovation.

The initiative also addresses long-standing anomalies in the previous GST framework, making compliance easier for businesses and promoting entrepreneurship and job creation. It is expected to increase disposable incomes, stimulate consumer spending, and strengthen domestic manufacturing.

At a glance, the key highlights of the next generation GST reforms are as follows:-

• Introduction of a simplified two-rate GST structure (5% and 18%), with a higher rate of 40% applicable to luxury and sin goods
• Treatment of Intermediary services as exports based on the recipient location.
• Allowance of post-sale discounts through credit notes without the requirement of pre-agreed contractual terms
• Risk-based provisional refunds for zero-rated supplies and input services.
• Refund eligibility for low-value exports of Rs. 1,000 or less
• Simplified GST registration for small taxpayers and e-commerce sellers.
• Exemption of GST on individual life and health insurance premiums.
• Operationalisation of Goods and Service Tax Appellate Tribunal (GSTAT)

3. Simplified GST Rate Structure

A cornerstone of GST 2.0 is the rationalisation of the earlier four-slab structure (5%, 12%, 18%, and 28%) into a more streamlined framework, aimed at reducing classification disputes and compliance complexity.

Revised GST Rates:

• Merit Rate (5%): Applicable to essential goods, including daily-use items, agricultural products, and healthcare devices.
• Standard Rate (18%): Applicable to the majority of goods and services, serving as the default rate.
• Sin/Luxury Rate (40%): Levied on goods considered harmful or ultra-luxury, including pan masala, certain alcoholic and tobacco products, high-end vehicles, and other luxury items.

Here are some sector-wise follow-up of the reforms and their expected impact.

(a) Food & Household Sector

GST 2.0 delivers immediate relief to families by exempting essential items such as UHT milk, paneer and various Indian breads from GST. Packaged foods and preserved meat are now taxed at 5%. Common household goods, such as, soaps, shampoos, toothbrushes and bicycles have also been brought under the 5% slab, directly reducing the cost of living.

(b) Automobile Sector

The reform rationalises tax rates across the automobile industry, reducing GST on mass-segment vehicles such as small cars and two-wheelers (up to 350cc) from 28% to 18%. Commercial vehicles, including buses and trucks, along with auto components, have also transitioned to 18% slab, improving affordability and supporting logistics efficiency.
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(c) Service Sector

The service sector receives a substantial boost through reduced GST rates on hospitality, wellness, transportation and personal care services. Services such as gyms, salons, barber services, and yoga have seen their GST rates lowered from 18% to 5%.

(d) Health & Life Insurance Sector

A major policy move under GST 2.0 is the complete exemption of GST on life and health insurance premiums. The reform aligns with the national objective of achieving ‘Insurance for All by 2047’ and is expected to encourage wider insurance penetration.

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