GST 2.0: A look at pros and cons for businesses and consumers

The next-generation GST reforms launched by the government last week are going to boost demand across sectors, while bringing relief to businesses with simplified compliance. The GST Council, on September 3, announced a simplified two-tier structure, bringing a wide range of goods under reduced tax slabs.

First introduced in 2017, the Goods and Services Tax (GST) was hailed as India's biggest tax reform by replacing multiple central and state-level taxes with a unified framework. Since its introduction, the GST regime has undergone drastic changes. The latest GST rates will come into effect from September 22.

The government has now introduced GST 2.0, aimed at making the GST structure easier, simpler and more convenient for both businesses and consumers. Under the new framework, the government retained 5% and 18% GST slabs, compared to the four-tier structure earlier. The government has now eliminated the 12% and 28% slabs.

A new 40% tax rate has been introduced for sin goods and luxury products. Let’s take a look at the pros and cons of GST 2.0 for both businesses and consumers.

Pros of GST 2.0 for businesses

The GST reforms are expected to make compliance easier for businesses. Since there are fewer tax slabs, companies and small traders don't have to calculate and adjust prices across multiple rates. In addition to this, businesses will be able to file their GST returns online through automated systems, which makes the process faster and simpler.

Refunds have often been delayed in the current system. So, with GST 2.0, refunds will be processed much quicker and with less paperwork. Also, GST 2.0 will use tools like artificial intelligence (AI) and data analytics. This will help detect errors, prevent fraud and create more transparency between businesses and tax authorities.

Pros of GST 2.0 for Consumers

The reduced GST rates will help consumers directly, as several products across sectors are going to become cheaper due to lower tax rates. The government has reduced GST rates on a wide range of products from 28% earlier to 18%. The GST council also reduced tax rates on several items to nil and removed the 12% tax rate, bringing the products in the slab to 5%.

Consumers can now purchase a wide range of goods like small cars, TVs and ACs at reduced prices. As many companies have already announced to pass on the benefits to customers, the savings on essential items may help in higher disposable income for all.

Cons of GST 2.0 for Businesses

Businesses may face transition challenges. Moving from the current GST system to GST 2.0 will not happen overnight. Businesses will need time to adjust to the new rules, understand the new slabs and update their systems.

Also, not every business has access to advanced digital tools. Small shops, local traders and businesses in rural areas may find it difficult to adapt to tech-heavy compliance like automated filing or AI-based checks.

Cons of GST 2.0 for Consumers

While essential items may get cheaper, some goods and services could move into higher tax slabs. For example, if a product shifts from 18% GST to the new 40% category, consumers will end up paying more.

During the transition phase, when businesses are still adjusting, consumers might face inconsistent pricing or billing errors until everything is streamlined.