GST 2.0: India’s tax reset signals confidence, not caution

What makes the reset even more notable is the political context. The Centre–State consensus on GST 2.0 demonstrates a maturing of India’s federal compact. Cooperative federalism—often more rhetoric than reality—is now manifesting in practice, notes Dinesh Kanabar, CEO of consultancy firm Dhruva Advisors.

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Published Sep 09, 2025 | 11:35 PM GMT-04

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When India rolled out the Goods and Services Tax (GST) in 2017, it was hailed as the single biggest reform in the country’s indirect tax system. Eight years later, the GST Council’s latest reset—collapsing multiple slabs into a simple three-tier structure—marks another watershed. Finance Minister Nirmala Sitharaman has called it “GST 2.0,” and rightly so: this isn’t tinkering at the margins, it’s a conscious bet on simplicity, compliance, and growth.

A Simpler System for a Complex Economy

The reform trims the maze of four-plus slabs into a more intuitive ladder: 5% for essentials, 18% for the majority of goods, and 40% for luxury and sin categories. For the common household, the changes are visible—many daily items, medicines, and foodstuffs move into the lower band. White goods and vehicles are cheaper. At the other end, luxury cars, casinos, and sugary drinks face some of the steepest indirect taxes globally.

The message is clear: GST 2.0 wants to ease life for the majority, while ensuring India remains fiscally disciplined. It is a move that supports consumption at the base while leaving space to tax premium indulgences.

A Political and Economic Balancing Act

What makes the reset even more notable is the political context. States, which have long been wary of revenue loss, agreed to the changes even as the Compensation Cess is being phased out. That consensus demonstrates a maturing of India’s federal compact. Cooperative federalism, often more rhetoric than reality, is showing up in practice.

For global investors, this is as important as the tax cut itself. A simpler, consensus-driven GST signals policy stability—something India has often been accused of lacking.

Trust Over Policing

Perhaps the most refreshing change is what is being taken away: the anti-profiteering watchdog will not return. Instead of heavy-handed policing, GST 2.0 relies on businesses to pass on the benefits of lower rates to consumers.

This trust-based approach reflects confidence in industry maturity and the strength of India’s digital tax infrastructure. E-invoicing, AI-based compliance monitoring, and real-time reporting have already narrowed the space for abuse. Shifting from suspicion to trust could change the tone of India’s tax administration—a long-awaited cultural reset.

Winners Today, Opportunities Tomorrow

Consumers clearly win. Exporters gain from reforms on intermediary services that make them more globally competitive. Several inverted duty structures are corrected, reducing working-capital stress.

Yes, some anomalies remain—certain pharma inputs and farm equipment components still face mismatches. Refund formulas are still incomplete. But the glass is more than half full: the overall direction is toward faster refunds, provisional credits, and simplified registrations for small e-commerce players.

Why It Matters Globally

GST 2.0 is not just a domestic tax story. It is a competitiveness story. As supply chains re-align away from China, India cannot afford an indirect tax system seen as complex and unpredictable. Simplification is a magnet for investment.

Brazil has only just embarked on its VAT reform. Europe still grapples with cross-border VAT frictions. Against that backdrop, India’s move to rationalise GST within a decade of rollout is bold and pragmatic. It places India closer to being an investor-friendly market of scale—an essential plank if the country is to reach its $10 trillion GDP ambition by 2035.

The Road Ahead: Toward GST 3.0

While this reset is significant, the horizon is clear. A truly world-class GST will need to:

- Bring petroleum, alcohol, and electricity into the tax net.
- Eliminate exemptions and edge closer to a uniform standard rate.
- Resolve all inverted duty structures and speed up refunds.
- Use digital tools and AI to deliver predictive, friction-free compliance.

These are not criticisms—they are opportunities. Every reset builds the foundation for the next. GST 2.0 creates momentum; GST 3.0 will cement India’s place among the most efficient indirect tax regimes globally.

A Confident Step Forward

India’s GST reform journey has often been described as cautious, incremental, even hesitant. GST 2.0 flips that narrative. By simplifying slabs, trusting businesses, and signaling federal cooperation, the reform communicates confidence—confidence in taxpayers, in technology, and in India’s growth story.

It may not be the final chapter, but it is one of the most important. GST 2.0 doesn’t just lower rates; it raises expectations. And that is precisely what a reforming, ambitious India should want.

—The author, Dinesh Kanabar, is CEO of Dhruva Advisors. The views are personal.

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