GST Reform 2.0: Implemented Today, Relief for Common Man, Boost for Economy

CA. VISHAL JAIN GST Expert

Starting from September 22, 2025, India’s Goods and Services Tax (GST) regime undergoes a historic overhaul with the implementation of ‘GST 2.0’. Finalized during the 56th GST Council meeting chaired by Finance Minister Nirmala Sitharaman, these reforms aim to simplify the tax structure, provide relief to consumers and MSMEs, and accelerate economic growth. It is estimated that these changes will put approximately ?2 lakh crore back into the hands of consumers, boosting consumption and investment.

In his Independence Day 2025 address, Prime Minister Narendra Modi described GST 2.0 as a ‘Diwali gift for the common man’. Home Minister Amit Shah called it ‘the next step in economic revolution’, emphasizing that it will enhance transparency and trust in the tax system. GST 2.0 is built on three core principles: simplification of tax slabs, rationalization of rates, and ease of compliance.

The GST rates currently applicable in the country are 0%, 0.25%, 1%, 3%, 5%, 12%, 18%, 28%, and 40%. Under GST 2.0, most items have been shifted to two primary slabs—5% and 18%. The 12% slab has not been abolished and remains applicable to mass bricks and building bricks (e.g., clay bricks, fly ash bricks, sand-lime bricks). Similarly, the 28% slab continues for luxury and sin goods (e.g., tobacco, gutkha, pan masala) with compensation cess, until states fully repay GST compensation loans, after which these will transition to the 40% slab. Approximately 99% of items previously in higher slabs have now been moved to 5% or 18%.

New Tax Slabs and Rates

Under GST 2.0, effective today, the majority of the four slabs (5%, 12%, 18%, 28%) have been streamlined into two main slabs—5% and 18%—while 0% (nil-rated), 0.25% (e.g., gem and jewelry sector), 1%, 3%, and 40% (luxury/sin goods) remain for specific cases. The 12% slab continues to apply to bricks and related items.

Key Items and Services with New Rates (Effective Today):

• Daily Use Items: Soaps, shampoos, toothpaste, tableware, bicycles—5% (previously 12% or 18%). Packaged namkeen, bhujia, sauces, pasta, chocolate, coffee—5% (previously 12% or 18%). UHT milk, pre-packaged paneer, Indian breads—0%.
• Consumer Electronics and White Goods: ACs, TVs (above 32 inches), refrigerators, washing machines, dishwashers—18% (previously 28%).
• Automobiles: Small cars (petrol <1200cc, diesel <1500cc, length <4m), two-wheelers (?350cc)—18% (previously 28%). Tractors, harvesters, sprinklers—5% (previously 12%).
• Construction Materials: Cement—18% (previously 28%). Marble/granite blocks, sand-lime bricks—5% (previously 12%). Clay bricks, fly ash bricks, building bricks—12% (6% without ITC). Steel, pipes, paints, tiles—18% (unchanged).
• Agriculture and Fertilizers: Bio-pesticides, natural menthol—5% (previously 12%). Inverted duty structure for fertilizers corrected.
• Services: Life and health insurance premiums—0%. Hotel stays (up to ?7,500/day)—5% (previously 12%). Gyms, salons, yoga—5% (previously 18%).
• Luxury/Sin Goods: Online gaming—40% (classified as demerit goods). Tobacco products—28% plus cess (to shift to 40% later).

Benefits for Common Man and Businesses

GST 2.0 will reduce daily expenses for middle-class families. Zero or 5% tax on life-saving drugs and educational materials (notebooks, pencils, erasers) will make healthcare and education more affordable. Companies like Bridgestone India and Tata Motors have announced they will pass on the benefits of tax reductions on tires and vehicles to consumers.

For MSMEs, simplified registration, pre-filled returns, and faster refunds have been introduced, reducing compliance costs. Lower production costs in textiles, renewable energy, handicrafts, and agriculture will boost exports. Finance Minister Sitharaman stated, “GST 2.0 makes the tax system more citizen-centric, promoting formalization and expanding the tax base.”

The Road Ahead

The implementation of GST 2.0 begins today on the auspicious occasion of Navratri, set to boost demand during the festive season. The government has strengthened price monitoring mechanisms to prevent profiteering. Experts predict these reforms will contribute an additional 1-2% to GDP growth, further strengthening India’s position on the global economic stage.