The Government of India rolled out GST 2.0 reforms on September 22, 2025, aimed at simplifying the Goods and Services Tax structure, reducing rates on multiple items, and resolving classification disputes. The move also targets the inverted duty structure, helping businesses with cash flow and encouraging consumer spending.
Recent GST Rate Rationalization
GST slabs have been streamlined into 5 per cent and 18 per cent, with a 40 per cent levy on sin and demerit goods. Over 375 items received tax cuts. Essential goods, certain medical devices, agricultural machinery, and hydrogen vehicles now attract 5 per cent GST, while industrial goods and most consumer durables fall under 18 per cent. Tobacco products remain in the highest slab with additional levies. The 12 per cent slab has mostly been removed, except for bricks, which continue under a special composition scheme.
Addressing Classification and Inverted Duty Issues
The reforms resolve disputes over taxing similar goods differently, such as varieties of Indian bread and popcorn. While the inverted duty structure—where input taxes exceed output taxes—has not been fully eliminated, aligning similar items in the same slab eases business pressures. Some sectors, including bicycles, fertilizers, and textiles, still face inversion challenges affecting working capital and refunds.
Impact on Services and Consumer Welfare
Service sectors also saw benefits from rate cuts. Health and life insurance remain exempt. Hotels with tariffs below ₹7,500, as well as wellness services like salons and spas, now attract 5 per cent GST, down from 12–18 per cent. These reductions aim to increase disposable income and boost household consumption, indirectly stimulating investment.
Ensuring Consumer Benefits
The government will monitor price changes for 54 categories, including food, personal care, and education items, over six months to prevent profiteering. Companies have already announced discounts and offers in anticipation of the reforms.
Streamlining GST Compliance
GST 2.0 also focuses on simplifying registration, return filing, and refunds through technology-driven processes. Pre-filled returns will reduce errors, and refunds—particularly for exporters and inverted duty cases—will be automated. Amendments to the CGST Act allow provisional sanction of 90 per cent of refund claims to ease cash flow issues.
Continuing Challenges
Some inversion problems remain, especially in manmade textiles and packaging, where input taxes exceed output taxes. Industry groups have raised these concerns, and further corrections are expected in future GST Council meetings.