GST 2.0: Key features and what change for businesses and consumers

The goods and services tax (GST) was launched in 2017 to simplify India’s indirect tax system by replacing multiple state and central levies. While the reform marked a turning point, businesses and consumers often found the system complicated, with four tax slabs, confusing classifications, and delays in refunds.

To address these challenges, the government has rolled out GST 2.0, a new version of the framework designed to reduce complexity and improve efficiency.

Fewer tax slabs, clearer rules

The biggest change in GST 2.0 is the rationalisation of tax slabs. Instead of four main rates—5%, 12%, 18%, and 28%—the new system has just three: 5% on essentials, 18% on most goods and services, and 40% on luxury and “sin” goods such as tobacco, aerated drinks, and pan masala.

This simplification is expected to reduce disputes over classifications that previously created confusion, for example whether a product should fall in the 18% or 28% category.

Faster refunds through technology

Refund delays were a major pain point under the earlier regime, locking up working capital for businesses. GST 2.0 tackles this issue by using technology, artificial intelligence, and data analytics. Online filing, instant approvals, and automated refunds are expected to cut paperwork and speed up fund flows, particularly benefiting small and medium enterprises.

Lower costs on essentials and key inputs

GST 2.0 also introduces lower rates on essential goods and critical inputs. Household items such as soaps, toothpaste, and Indian breads are taxed at 5 per cent or exempted entirely, while life-saving medicines now carry reduced rates.

On the business side, lower levies on inputs like cement, auto parts, and handicrafts should help bring down production costs, making smaller firms more competitive.

A more balanced tax structure

The new framework is designed to align taxes with consumption patterns. Essentials are kept affordable, while high-value and luxury consumption attracts higher rates. This shift makes the system simpler for businesses to comply with and clearer for consumers to understand product pricing.

What it means going forward

With fewer slabs, quicker refunds, and a more transparent structure, GST 2.0 is expected to ease compliance burdens and enhance consumer confidence. For households, the reform translates into lower costs on daily-use items and healthcare. For businesses, it promises reduced disputes and faster access to working capital.