The announcement by Prime Minister Narendra Modi regarding GST 2.0 is a timely and strategic move to build a resilient Indian economy, according to experts.
From the ramparts of the historic Red Fort, Modi announced that the GST rates will be lowered by Diwali, bringing down prices of everyday use items, as his government looks to reform the eight-year-old tax regime that has been plagued by litigation and evasions.
Later, the Finance Ministry said it has proposed that most goods and services be taxed in two slabs - standard and merit - and a select few items be charged special rates. This is to replace the current goods and services tax (GST) structure, where the sale of goods and rendering of services are taxed in four different brackets - 5, 12, 18 and 28 per cent, with luxury and sin goods attracting a levy on top of the highest rate of 28 per cent.
"The Prime Minister's vision for GST 2.0 is a timely and strategic move to build a resilient Indian economy. These are not merely procedural changes; they are essential structural reforms designed to mitigate the risks arising from global trade tensions. By addressing the inverted duty structure, we are unlocking crucial working capital and making our exports more competitive on the global stage," said Saurabh Agarwal, Tax Partner, EY India.
Simultaneously, rationalising rates will boost domestic consumption, creating a powerful buffer against external shocks, Agarwal added.
Krishan Arora, Partner-Tax Planning & Optimisation, Grant Thornton Bharat, said GST rate structure rationalisation has been on the cards for a while now.
"With the announcement by the Prime Minister, it seems the rate fitment work is complete and one could expect the rate rejig of items of daily consumption falling in 12 per cent to 5 per cent, which could help not only reduce end-product prices but also boost consumption and demand, especially for MSMEs," Arora said.
The eight-year-old tax regime, which merged central taxes like excise duty and state levies like VAT into one tax, has led to the indirect tax base doubling to 1.52 crore, but tax rate cuts and the pandemic slowdown have meant net revenue collected has only recently converged to the pre-GST level.
Vivek Jalan, Partner, Tax Connect Advisory Services LLP, said the GST Council has not met for the last eight months as a massive exercise for rate rationalisation is underway, and a Group of Ministers (GoM) are reviewing the comprehensive rate rationalisation programme.
"It is expected that this Diwali, items of mass consumption by the common man will be brought into the lower slab of 5 per cent GST. For example, small sachets of Rs 10 or less supplied by FMCG players may be considered to be brought under the lower tax bracket of 5 per cent," he added.
Jalan said a lower GST rate will augur well for the overall economy.
CII Director General Chandrajit Banerjee said the Prime Minister's Independence Day address reflects a deep commitment to empowering India's youth, strengthening MSMEs, and accelerating the Atmanirbhar Bharat mission.
The milestone of the Rs 1 lakh crore youth empowerment initiative of the PM-Viksit Bharat Rozgar Yojana, with its Rs 15,000 support for first-time job seekers, has the potential to create large-scale employment opportunities, enhance skills, and open pathways for sustained livelihoods, he noted.
MSMEs, as the backbone of India's economy, stand to gain significantly from these measures. Increased access to talent, targeted incentives, and a stronger domestic manufacturing ecosystem will enable them to scale, innovate, and integrate more deeply into global value chains, Banerjee said.
"The long-awaited GST 2.0 now seems even closer. The Prime Minister, in his speech on the 79th Independence Day, has promised a bonanza for aam aadmi in Diwali. There is a possibility of two GST Council meetings in September in this regard. The possible reforms could include doing away with the 12 per cent slab, rate rationalisation for health and life insurance, some of the essential items, and clarity in the provisions regarding blocked credits," Harsh Shah, Partner, Economic Laws Practice, said.
With the GST collections in FY 2025-26 likely to exceed 22 lakh crore (average monthly collection of 1.85 lakh crore), the time is right to provide the much-needed boost to the economy, especially considering the geopolitical situation over the last few months, he pointed out.
From the ramparts of the historic Red Fort, Modi announced that the GST rates will be lowered by Diwali, bringing down prices of everyday use items, as his government looks to reform the eight-year-old tax regime that has been plagued by litigation and evasions.
Later, the Finance Ministry said it has proposed that most goods and services be taxed in two slabs - standard and merit - and a select few items be charged special rates. This is to replace the current goods and services tax (GST) structure, where the sale of goods and rendering of services are taxed in four different brackets - 5, 12, 18 and 28 per cent, with luxury and sin goods attracting a levy on top of the highest rate of 28 per cent.
"The Prime Minister's vision for GST 2.0 is a timely and strategic move to build a resilient Indian economy. These are not merely procedural changes; they are essential structural reforms designed to mitigate the risks arising from global trade tensions. By addressing the inverted duty structure, we are unlocking crucial working capital and making our exports more competitive on the global stage," said Saurabh Agarwal, Tax Partner, EY India.
Simultaneously, rationalising rates will boost domestic consumption, creating a powerful buffer against external shocks, Agarwal added.
Krishan Arora, Partner-Tax Planning & Optimisation, Grant Thornton Bharat, said GST rate structure rationalisation has been on the cards for a while now.
"With the announcement by the Prime Minister, it seems the rate fitment work is complete and one could expect the rate rejig of items of daily consumption falling in 12 per cent to 5 per cent, which could help not only reduce end-product prices but also boost consumption and demand, especially for MSMEs," Arora said.
The eight-year-old tax regime, which merged central taxes like excise duty and state levies like VAT into one tax, has led to the indirect tax base doubling to 1.52 crore, but tax rate cuts and the pandemic slowdown have meant net revenue collected has only recently converged to the pre-GST level.
Vivek Jalan, Partner, Tax Connect Advisory Services LLP, said the GST Council has not met for the last eight months as a massive exercise for rate rationalisation is underway, and a Group of Ministers (GoM) are reviewing the comprehensive rate rationalisation programme.
"It is expected that this Diwali, items of mass consumption by the common man will be brought into the lower slab of 5 per cent GST. For example, small sachets of Rs 10 or less supplied by FMCG players may be considered to be brought under the lower tax bracket of 5 per cent," he added.
Jalan said a lower GST rate will augur well for the overall economy.
CII Director General Chandrajit Banerjee said the Prime Minister's Independence Day address reflects a deep commitment to empowering India's youth, strengthening MSMEs, and accelerating the Atmanirbhar Bharat mission.
The milestone of the Rs 1 lakh crore youth empowerment initiative of the PM-Viksit Bharat Rozgar Yojana, with its Rs 15,000 support for first-time job seekers, has the potential to create large-scale employment opportunities, enhance skills, and open pathways for sustained livelihoods, he noted.
MSMEs, as the backbone of India's economy, stand to gain significantly from these measures. Increased access to talent, targeted incentives, and a stronger domestic manufacturing ecosystem will enable them to scale, innovate, and integrate more deeply into global value chains, Banerjee said.
"The long-awaited GST 2.0 now seems even closer. The Prime Minister, in his speech on the 79th Independence Day, has promised a bonanza for aam aadmi in Diwali. There is a possibility of two GST Council meetings in September in this regard. The possible reforms could include doing away with the 12 per cent slab, rate rationalisation for health and life insurance, some of the essential items, and clarity in the provisions regarding blocked credits," Harsh Shah, Partner, Economic Laws Practice, said.
With the GST collections in FY 2025-26 likely to exceed 22 lakh crore (average monthly collection of 1.85 lakh crore), the time is right to provide the much-needed boost to the economy, especially considering the geopolitical situation over the last few months, he pointed out.
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