GST 2.0 Kicks In: What’s Cheaper for You?

GST 2.0 brings about a significant restructuring of India’s indirect tax system, simplifying the previous four-slab structure into a more streamlined three-tier framework. This reform, which is a major move toward a more transparent and efficient tax regime, impacts both consumers and industries in various ways, largely for the better.

Changes for Consumers

The most direct and visible impact for consumers is the reduction in prices for a wide range of goods and services. The new structure replaces the old 5%, 12%, 18%, and 28% slabs with a new system that features a 5% rate for essentials, an 18% rate for most other standard goods, and a 40% rate for luxury and “sin” goods.

• Cheaper Essentials: Daily household items and groceries are now more affordable. Products like soaps, shampoos, toothpaste, and packaged foods such as namkeens, biscuits, and chocolates have moved from the 12% or 18% tax slabs to the lower 5% slab. Additionally, some staples like UHT milk, paneer, and certain Indian breads are now tax-exempt. This change directly increases the disposable income of households.
• Reduced Cost of Big-Ticket Items: For consumers planning to make larger purchases, GST 2.0 offers substantial savings. Consumer durables such as air conditioners, televisions (over 32 inches), and washing machines have been moved from the 28% slab to the 18% slab, making them significantly cheaper. Similarly, small cars and two-wheelers up to 350cc now attract an 18% GST instead of 28%, which is a major relief for the middle class.
• Affordable Healthcare and Financial Protection: The reform makes healthcare more accessible by reducing GST on most medicines and medical devices to 5%. A select list of life-saving drugs is now completely tax-free. In a landmark change, all individual life and health insurance premiums are now fully exempt from GST, which previously levied an 18% tax. This change will lead to significant annual savings for families and encourage greater financial inclusion.

Changes for Industry

For businesses, GST 2.0 simplifies compliance, corrects long-standing issues, and is expected to boost overall economic activity.

• Simplified Compliance: The shift to a two-rate system for the majority of goods and services (5% and 18%) reduces the complexity of tax classification and compliance. This simplified structure is a boon for businesses, especially for small and medium-sized enterprises (MSMEs), which previously struggled with a multi-tiered system. The government has also made procedural changes to streamline registration and speed up the refund process.
• Boost to Key Sectors: The reduced tax rates are designed to stimulate specific sectors. The cut in GST on cement and construction materials from 28% to 18% is expected to boost the real estate and housing sectors by making projects more affordable. Similarly, the reduced GST on agricultural machinery and fertilizers from 12% to 5% will lower input costs for farmers, boosting the agriculture sector. The automobile industry is set to see a surge in demand due to the tax cuts on popular vehicles.
• Correction of Inverted Duty Structures: The new framework addresses the issue of inverted duty structures in certain industries, such as textiles and fertilizers, where the tax on raw materials was higher than that on the final product. By correcting this, GST 2.0 eases the process for claiming input tax credits and reduces disputes, providing greater predictability for businesses.
• Potential Challenges: While the changes are largely positive, some challenges exist. The high 40% GST rate on luxury and “sin” goods (like tobacco and high-end cars) could impact the sales of these items. Businesses also face the immediate task of updating their billing systems and pricing to reflect the new rates. The anti-profiteering measures will be crucial to ensure that businesses pass on the tax reductions to consumers and don’t absorb the benefits themselves.

Overall, GST 2.0 is designed to be a pro-consumer and pro-industry reform that aims to fuel consumption, boost manufacturing, and create a more transparent and efficient tax environment in India.

For a detailed visual breakdown of the GST 2.0 changes, this video offers a concise summary of what gets cheaper and what stays the same.