How GST 2.0 could simplify India’s tax system

India's Goods and Services Tax (GST), which was implemented in 2017, combined dozens of state and federal levies into a single indirect tax system. However, its intricacy—several tax slabs, unclear classifications, delayed refunds, and controversial state revenues— led to calls for reform.

As a strategic development of the first 2017 tax regime, India's GST Council authorised a ‘GST 2.0’ reform on September 3, with the goals of simplifying the tax structure, addressing systemic inefficiencies, and boosting domestic economic activity. With effect from September 22, this GST reform is the biggest change to India's tax structure since the initial GST introduction.

Rationalisation of rate structure

The primary objective of GST 2.0 is the rationalisation of the rate structure. There are four main consumer slabs under the current GST framework: 5%, 12%, 18%, and 28%. In addition, there are special rates and exclusions.

This is reduced under the proposed reform to two major rates of 5% and 18%, and an additional 40% for luxury and ‘sin’ goods. This slab reduction aims to simplify categorising goods and services, eliminate litigation over whether an item is ‘sweet vs. savoury’ or ‘extrusion-based,’ and lower compliance expenses.

Burden reduction on consumers and MSMEs

Another important aspect is easing the burden on Micro, Small, and Medium Enterprises (MSMEs) and consumers. The tax brackets for many everyday items and necessities will drop, and some will even become tax-free.

GST 2.0 lowers the tax rates on products like soaps, packaged meals, appliances, construction materials, and some household goods, which helps drive down prices. MSMEs are expected to gain from easier compliance, faster registrations, and more efficient refund procedures (particularly for exporters).

Clarity in classification

Classification clarity is yet another area that needs improvement. Confusing differences have long been a source of disagreement and ambiguity, such as those between similar commodities positioned in various slabs because of technical definitions.

The goal of GST 2.0 is to deal with these irregularities and guarantee that usually comparable commodities are taxed similarly, without creating artificial divergence based on minor differences.

Restoring inverted duty structures

Taxes on yarn have decreased from 12% to 5% and on synthetic fibre from 18% to 5%. Fertilisers, including ammonia, nitric acid, and sulphuric acid, have also dropped from 18% to 5%. Cash flows for exporters and small manufacturers will improve as a result of these adjustments.

Simplified refunds and filings

For small and low-risk firms, registration must be completed within three days.

Exporters, especially small exporters, are eligible for 90% upfront provisional refunds. AI-driven surveillance combined with end-to-end digital compliance to lower fraud, and the e-invoicing system was implemented in several domains.

GST 2.0 is a bold and revolutionary step in India's tax history. The revisions are intended to help states, enterprises, and citizens by reducing rates on necessities, rationalising slabs, correcting duty anomalies, and making compliance simpler.

The revisions emphasise the ‘Simple Tax, Better Life’ concept, which is a framework that is both business-friendly and citizen-centric.