GST 2.0 in India: A Bold Leap Toward Simplicity, Affordability, and Growth

India’s Goods and Services Tax (GST) regime has undergone a seismic shift in 2025, marking the rollout of GST 2.0—a reform package aimed at simplifying tax structures, reducing consumer burden, and boosting economic momentum. With the new rates set to take effect from September 22, 2025, this overhaul is being hailed as one of the most transformative updates since GST’s inception in 2017.

Let’s unpack what’s changing, why it matters, and how it affects everyday life.

🧮 A Simpler Structure: Two Slabs and One Luxury Tier

The GST Council, led by Finance Minister Nirmala Sitharaman, approved a two-tier rate structure:

5% for essential and merit goods
18% for standard goods and services
40% for luxury and sin goods

This move eliminates the previous 12% and 28% slabs, streamlining compliance and reducing classification disputes. The new structure is designed to be intuitive, predictable, and aligned with consumption patterns.

🛒 Relief for Households: Essentials Get Cheaper

One of the most celebrated aspects of GST 2.0 is the tax relief on daily-use items. Here’s what’s changing:

Zero GST on ultra-high temperature (UHT) milk, paneer, rotis, khakhras, and Indian breads like parathas and porottas1
5% GST on butter, ghee, cheese, dry fruits, biscuits, chocolates, jams, sauces, and fruit juices—down from 12–18%
Life-saving medicines and cancer therapies are now fully exempt, while most other drugs are taxed at a concessional 5% rate4

This rationalisation is expected to ease household budgets, especially for middle-income families, and improve access to healthcare and nutrition.

🚗 Auto Sector Shake-Up: Winners and Losers

The automobile industry sees a mixed bag of outcomes:

Small cars and commuter motorcycles (under 1,200 cc for petrol and 1,500 cc for diesel) now attract 18% GST, down from 28%
Commercial vehicles like buses, ambulances, and trucks also benefit from the reduced rate
Luxury vehicles and high-end bikes face a flat 40% GST, replacing the previous combination of 28% GST plus compensation cess

This restructuring aims to boost demand for affordable mobility while discouraging excessive consumption of luxury goods.

🏥 Healthcare Gets a Boost

Healthcare reforms under GST 2.0 are both progressive and impactful:

Medical devices, diagnostic kits, and retail health products like glucometers and corrective spectacles now fall under the 5% slab
Health insurance policies are fully exempt from GST, making coverage more accessible4

Industry leaders have praised these changes for aligning taxation with public health priorities. The reforms are expected to expand access in rural areas, reduce litigation, and encourage innovation in the pharma and medtech sectors.

👗 Apparel and Footwear: Affordable Fashion

In a move to support labour-intensive industries, the GST Council has:

Reduced GST on footwear and apparel priced up to ₹2,500 to 5%, compared to the earlier 12% slab
Scrapped the 12% and 28% slabs for most consumer goods, simplifying pricing and boosting demand

This is a win for both consumers and small businesses, especially in textile hubs like Surat and Tiruppur.

📈 Economic Implications: Consumption-Led Growth

The GST 2.0 reforms are expected to:

Boost consumption by lowering prices on essentials and aspirational goods
Empower MSMEs through simplified registration, pre-filled returns, and faster refunds
Trigger a consumption upcycle, especially in sectors like autos, consumer durables, and packaged foods

Analysts believe these changes could lead to stronger GDP growth, improved tax compliance, and a more transparent economy.

🧠 The Philosophy Behind GST 2.0

At its core, GST 2.0 reflects a shift in philosophy—from revenue maximisation to social alignment. By prioritising affordability, transparency, and ease of doing business, the government is betting on broad-based economic participation as the engine of growth.

As Finance Minister Sitharaman noted, “These reforms have been carried out with a focus on the common man. Every tax on daily-use items has gone through rigorous review, and in most cases, the rates have come down drastically”.

🔮 What Lies Ahead?

While GST 2.0 is a bold step forward, challenges remain. States are concerned about compensation mechanisms, especially with the removal of the compensation cess. The success of these reforms will depend on effective implementation, industry cooperation, and continued dialogue between the Centre and states.