The GST 2.0 reform in India, as discussed in the video, marks a major shift in the country’s indirect tax system. The change to a simplified two-slab GST structure aims to boost the economy, reduce consumer costs, and make tax compliance easier for businesses.
GST 2.0: Two-Slab Structure Approved
The GST Council has approved the move to eliminate the 12% and 28% GST rates, leaving only two standard slabs: 5% and 18%. A special 40% rate applies only to a select set of “super luxury” and demerit goods, such as tobacco, pan masala, some sugary beverages, and select high-end automobiles.
What’s Cheaper Under GST 2.0?
- 99% of goods that were previously taxed at 12% are now covered under the lower 5% GST rate*. This shift means many items—from daily essentials like toothpaste, shampoo, biscuits, and namkeen to services such as hotel stays and insurance—are now significantly more affordable for the average consumer.
- White goods and electronics (like TVs and ACs) that earlier attracted a steep 28% GST now fall under the 18% bracket, resulting in big price drops.
- Health and life insurance policies, as well as many medical devices, are either entirely GST-exempt or have seen their tax rate cut from 18% to 5%.
- Hotel stays costing under ₹7,500 per night now attract just 5% GST, making travel more budget-friendly.
- Personal and well-being services, like salons and gyms, also witness a drop to 5% GST.
What’s Costlier: Super Luxury and Demerit Goods
- Super-luxury goods and services, including high-end cars (with engines above 1500cc or vehicles longer than 4 meters), some sugared drinks, and gambling, now fall under the 40% GST rate.
- Demerit goods, such as tobacco products and pan masala, attract 40% GST plus a compensation cess, making them significantly more expensive.
Special Cases: Automobiles and EVs
- Small petrol cars (engine capacity under 1200cc) and diesel cars (under 1500cc), as well as. motorcycles under 350cc, are now taxed at 18%—much cheaper than before.
- Luxury cars and large SUVs remain in the highest GST bracket (40%).
- Electric vehicles (EVs) continue at a concessional 5% rate, supporting the government’s green push.
Revenue Considerations
- The government expects a temporary revenue loss of approximately $16–20 billion (about ₹1.5–2 lakh crore), or 0.6%–0.8% of GDP.
- To offset this, the continuation and extension of the compensation cess on select items will provide additional funds, especially to states facing revenue shortfall.
- Long-term, higher voluntary tax compliance (“tax buoyancy”) is projected as lower rates reduce tax evasion incentives.
Administrative and Real-World Implications
- Businesses must update their invoicing and accounting systems by September 22, 2025, when the new GST rates take effect (coinciding with the first day of Navratri).
- The government is also working to streamline registration and refund systems under GST 2.0, making the whole process faster and simpler for everyone.
Conclusion
The GST 2.0 reform with its two-slab structure is a historic move for India. By making essential goods and services affordable and cutting down on complexity and disputes, this reform is set to make the tax system more efficient, consumer-friendly, and growth-oriented, even as it manages the challenge of short-term revenue loss[1].
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