By Dr Sunita Vidyarthi
The term “Next-Gen GST” or “GST 2.0” refers to a significant set of reforms and rationalisation measures approved by the GST Council, with a primary focus on simplifying the tax structure, reducing rates on essential and common-use goods, and improving the ease of doing business.
Here are the key highlights and takeaways from recent articles regarding the Next-Gen GST reforms:
- Simplified Tax Structure
* Two-Slab System: The reforms simplify the multi-layered Goods and Services Tax structure from four main slabs (5%, 12%, 18%, and 28%) to primarily two slabs: 5% and 18%.
* The earlier 12% and 28% slabs have largely been done away with, with most goods previously in these brackets moving to 5% or 18%.
* A special, high rate of 40% is now levied on ultra-luxury and sin goods, while tobacco and related products mostly remain in the 28% plus cess category.
- Rate Reductions and Consumer Relief
* Essentials are Cheaper: GST rates on a wide range of daily essentials and mass-consumption goods have been reduced to 5% (or made Nil). This includes:
* Household items like soaps, toothpaste, hair oil, biscuits, and confectionery.
* Many food items like butter, cheese, ghee, and packaged paneer.
* Life-saving drugs and medical devices (e.g., glucometers, diagnostic kits) have been reduced to 5% or Nil.
* Aspirational Goods: Many goods previously taxed at 28% have moved to the 18% slab, including:
* Consumer durables like air conditioners, washing machines, and large-screen TVs.
* Cement (reduced from 28% to 18%), which is expected to benefit the infrastructure and housing sectors.
* Small cars and two-wheelers.
* Services: GST on beauty and physical well-being services (salons, health clubs, gyms, yoga) has been slashed from 18% to 5% (without input tax credit).
* Insurance: GST on individual life and health insurance premiums has been exempted (from 18% earlier).
- Economic Impact
* Boost to the Economy: The Finance Minister stated that the rate cuts are expected to inject approximately Rs 2 lakh crore into the economy, leaving people with more disposable income.
* Consumption Growth: The reduction in taxes on daily essentials is anticipated to boost affordability and consumption, particularly in rural markets, and provide a fillip to the Fast-Moving Consumer Goods (FMCG) sector.
* Fixing Inverted Duty Structure: The reforms address issues like the inverted duty structure in key sectors (e.g., textiles), which is expected to free up working capital for businesses and enhance competitiveness.
- Implementation Details
* Effective Date: The revised rates and exemptions for most goods and services are scheduled to come into effect from 22 September 2025.
* Compliance and Ease of Business: The reforms also include measures for process simplification, such as automatic registration and faster refund processing, to support MSMEs and improve the overall business environment.
