When the Goods and Services Tax (GST) was rolled out in 2017, it was hailed as the biggest tax reform in independent India. Over the years, however, it became clear that the four-slab structure and multiple exemptions created complexities for businesses and confusion for consumers. Frequent classification disputes, uneven tax incidence on essential goods, and high compliance burdens on small traders began to overshadow the intended simplicity. Against this backdrop, the government and the GST Council decided to take a fresh look, a move that culminated in the launch of GST 2.0 in September 2025!
What triggered GST 2.0?
The triggers were both economic and practical. On one hand, the middle class was struggling with rising costs, especially on day-to-day essentials and health-related expenses. On the other, businesses faced litigation on rate disputes and input credit blockages that tied up working capital. Policymakers also recognised that a complex slab system was hurting consumption and making compliance unnecessarily difficult. By simplifying the structure and rationalising rates, the government aimed to boost consumption, reduce inflationary pressures, and create a more predictable tax regime.
How the reform was planned
The journey to GST 2.0 was not an overnight development. It was preceded by months of deliberations within the GST Council, involving state finance ministers, policy experts, and industry representatives. The key considerations were:
By early September 2025, the Council reached consensus, announcing that the new system would come into effect from 22 September 2025.
What the new rates mean for the middle class?
For a regular household, the impact of GST 2.0 is fairly straightforward: more items that form part of a monthly grocery bill or household budget are now taxed at lower rates. Many packaged foods, personal care products, and basic medical items have seen significant reductions. This translates into lower bills at the supermarket and pharmacy, which is a direct relief for middle-income families. The simplification of slabs largely to 0%, 5%, and 18% also reduces hidden pricing anomalies, making it easier for consumers to understand tax incidence on what they buy.
Top 10 items where GST has been reduced
While the complete list runs into several pages of HSN codes, here are some widely used products where rate cuts have been announced:
Sectors most impacted
Several sectors are expected to see transformative effects. FMCG companies will benefit from clarity and reduced rates on popular household goods. The healthcare and medical devices industry gets relief through lower taxes on diagnostics and equipment, improving affordability of treatment. The agriculture sector sees lower costs for farm implements, which could support rural productivity. The insurance sector, especially health insurance, has also been addressed with reforms that reduce ambiguities around input credits and commissions.
The road ahead
GST 2.0 is not just a rate cut exercise; it is an attempt to restore simplicity and predictability to India’s indirect tax system. By reducing slabs, clarifying exemptions, and cutting rates on essentials, the reform seeks to put more money in consumers’ hands while easing compliance headaches for businesses. The real test, however, will be in execution whether businesses pass on the benefits quickly and whether disputes genuinely reduce under the new structure.
GST 2.0 is an opportunity to simplify and reset. It is an opportunity where businesses can not only stay compliant but also unlock efficiency and cost savings.