GST 2.0 in India: How the New Reforms Will Reshape Business Compliance and Tax Planning in 2025

GST 2.0 in India

GST 2.0 marks the most significant overhaul of India’s GST since its inception in July 2017. Announced during the Independence Day address on August 15, 2025, Prime Minister Modi unveiled this next-generation reform, aiming to simplify the tax structure, reduce the burden on consumers, and spur economic growth by Diwali.

These reforms were finalized at the 56th GST Council meeting on September 3, 2025, with broad consensus across states.

Key Elements of the Reform

  Streamlined Tax Slabs:

Old Structure	New Structure
0%, 5%, 12%, 18%, 28%	Simplified to 5% (merit/essential goods), 18% (standard goods/services), and a 40% demerit rate (sin and luxury items)

What Gets Cheaper

• Essentials and daily-use items:  Toiletries (soap, shampoo), beverages, biscuits, oral care products now come under 5% or are even nil-rated (e.g., UHT milk, paneer, traditional breads)

• FMCG: Items like namkeens, pasta, chocolates, juices → 5%

• White goods/durables: TVs, ACs, dishwashers → down to 18%
•  

Automobiles:

• Small cars (≤ 1200 cc petrol / ≤ 1500 cc diesel, and ≤ 4,000 mm length): 18%

• Three-wheelers, buses, trucks: 18%

• Insurance: Individual life and health insurance policies are exempt (0%)

Healthcare & agriculture:

• Critical drugs, medical devices, diagnostic kits: reduced to 5% or NIL

• Farming machinery, fertilizers, irrigation: shifted to 5%

What Gets Costlier

• The new 40% demerit rate applies to:

• Luxury and sin goods: tobacco, pan masala, aerated drinks, high-end SUVs, yachts, private aircraft, etc.

Beyond Rates — Structural & Procedural Reforms

• GST 2.0 isn’t just a rate cut; it also includes deep structural improvements:

• Eliminates inverted duty structure where inputs were taxed higher than outputs, easing working capital issues

• Reduces classification disputes by simplifying slabs

• Eases compliance with faster refunds, smoother registration, and digital process improvements — especially helpful for MSMEs and exporters

• GST Appellate Tribunal (GSTAT) will be operational by December 2025 to resolve disputes

Economic Impacts & Industry Response

• Boost to Consumption and Relief

• Consumers are set to gain from cheaper daily essentials and durable goods

• Finance Minister says GST 2.0 will benefit every citizen, especially middle-class families

• The reform is being framed as a reform to drive self-reliance and growth

Mixed Business Sentiment

• Auto sector sees large price drops; premium cars could be more affordable by ₹65,000 to ₹11 lakh depending on brand/model

• ITC concerns: Some sectors, especially in Gujarat, worry about blocked input tax credits and working capital challenges during the festive season

• Jewellery sector: Gold traders are still facing double taxation on making charges, expressing dissatisfaction

             Summary Table

Aspect	Details
Implementation Date	September 22, 2025
Tax Slabs	5% (essentials), 18% (standard), 40% (sin/luxury)
Cheaper	FMCG, durables, small cars, insurance, healthcare, agri inputs, tools
Costlier	Luxury goods, tobacco, sugary drinks
Structural Gains	Compliance ease, reduced disputes, GSTAT, working capital benefits
Economic Impact	Increased consumption, relief to consumers, and business optimism

Below is a simplified comparison based on the rate changes announced by the GST Council:

FMCG & Household Items:

Item	Old GST Rate (before GST 2.0)	New GST Rate (GST 2.0)	Price Impact
Biscuits	18%	5%	↓ Cheaper (~10–12% drop)
Chocolates	18%/28%	5%	↓ Significantly cheaper
Namkeens, snacks	12%/18%	5%	↓ Cheaper
Pasta, noodles	18%	5%	↓ Cheaper
Shampoo, soap, toothpaste	18%	5%	↓ Cheaper

Consumer Durables & Electronics:

Item	Old GST Rate	New GST Rate	Price Impact
Air-conditioners (AC)	28%	18%	Big price cut (~8–9% lower)
Dishwashers	28%	18%	↓ Cheaper
LED TVs (mid-size)	28%	18%	↓ Cheaper
Washing machines	28%	18%	↓ Cheaper

Automobiles:

Vehicle Category	Old GST + Cess	New GST 2.0	Price Impact
Small cars (≤1200cc petrol / ≤1500cc diesel, ≤4m length)	28% + 1–3% cess	18%	Cheaper (₹50,000–₹1.5 lakh drop)
Large / luxury cars & SUVs	28% + 15–22% cess	40% (combined)	Mixed — often similar or slightly costlier
Electric vehicles (EVs)	5%	5% (unchanged)	-

Healthcare & Agriculture:

Item	Old GST Rate	New GST Rate	Price Impact
Critical medicines	28% + cess	5% or NIL	↓ Cheaper
Medical devices, kits	12%/18%	5% or NIL	↓ Cheaper
Fertilizers, irrigation tools	12%	5%	↓ Cheaper
Life & health insurance premium	18%	0% (exempt)	↓ Free from GST

Luxury & Sin Goods (Costlier Now):

Item	Old GST Rate	New GST Rate	Price Impact
Tobacco products	28% + cess	40% (merged)	↑ Costlier
Aerated/sugary drinks	28% + cess	40%	↑ Costlier
High-end SUVs, yachts, private jets	28% + cess	40%	↑ Costlier

General Trend:

1. Essentials & mass-market goods → cheaper
2. Durables & small cars → noticeably cheaper
3. Luxury & sin goods → costlier or similar depending on old cess levels