The wait for GST 2.0 is finally over. In the 56th GST Council meeting held on September 3, the government announced a major overhaul of goods and services tax rates, aimed at rationalising the structure and simplifying procedures. The move has been welcomed by industrialists, common citizens, and even opposition parties, although some critics pointed to the delayed announcement and potential revenue loss for states.
Under the new system, previous GST rates of 5%, 12%, 18%, and 28% have been realigned to mainly 5% and 18%, considering consumer needs and aspirational aspects of products.
Economist Subramanian observed, āThis is a carefully planned move over the past two years. By easing the tax burden on aspirational and essential goods, more money will remain in the hands of consumers, which will cycle back into trade and economic activity. It is not a zero-sum game; the reduction in tax is essentially a gain for society.ā
The GST changes will come into effect from September 22, 2025. For some products, the GST compensation cess has been removed, except for pan masala, gutkha, cigarettes, and chewing tobacco products, which will continue at existing rates until outstanding loan and interest obligations under the compensation cess account are fully discharged.
Subramanian explained, āWherever the compensation cess merges into the basic GST rates, states will see an increase in their revenue share. For instance, the earlier 28% rate gave states 14% of revenue, but now it rises to 20%. On a vehicle worth 10 lakh rupees, this translates to an additional 60,000 rupees per sale for the state government. Similar gains apply to aerated drinks containing sugar or flavouring.ā
One of the most notable changes comes in the insurance sector. Individual life insurance and health insurance have been brought down to a 0% GST rate from the earlier 18%, which was 15% in the previous service tax regime. Subramanian noted, āThis is a long-awaited reform requested by political parties and citizens alike. Reducing tax on insurance makes it more affordable and encourages financial security.ā
Experts say that the simplified GST structure, coupled with a strong tax network, will enable the government to make better-informed policy decisions and maintain a regulated, transparent economy.
Subramanian added, āThe reduction in GST rates is essentially a win-win. Consumers save more, states gain additional revenue where applicable, and economic activity is likely to receive a significant boost.ā