Introduction
The Union Government has rolled out GST 2.0 reforms to simplify the tax structure, resolve long-standing classification issues, enhance taxpayer compliance, and stimulate consumption. The new framework marks the most significant reform since the introduction of the Goods and Services Tax (GST) in July 2017.
Simplified Tax Structure
- The earlier multi-slab GST system has been rationalised.
- Taxes are now categorised under:
- Merit rate: 5%
- Standard rate: 18%
- Demerit rate (sin goods): 40%
- This restructuring aims to reduce complexity and make GST business-friendly.
Focus on Affordability and Consumption
- Daily-use food items like Indian breads have been exempted.
- Health and life insurance services are now GST-free, reducing household expenses.
- The reform intends to increase disposable income and spur demand in the economy.
Correcting the Inverted Duty Structure (IDS)
- A key issue addressed in GST 2.0 is the inverted duty structure, where input taxes are higher than output taxes, causing working capital strain.
- Although certain sectors like tractors, bicycles, and fertilizers still face IDS, reforms have:
- Streamlined refund procedures
- Allowed risk-based provisional refunds of up to 90% under Section 54(6) of the CGST Act
- Reduced cash flow delays for businesses
Transparency and Consumer Protection
- The Finance Ministry has mandated monthly monitoring of commodity prices before and after GST rate changes.
- This ensures that businesses pass on tax benefits to consumers and prevents unjustified price hikes.
Ease of Compliance and Digital Integration
- GST 2.0 emphasizes technology-enabled compliance.
- Improvements include:
- Simplified registration
- Auto-populated and streamlined return filing
- Faster refund settlements
- These upgrades especially benefit MSMEs and startups, reducing compliance costs and litigation.
Conclusion
GST 2.0 aims to simplify India’s indirect taxation system while promoting fairness, transparency, and economic growth. By correcting structural flaws and easing business processes, it supports the government’s vision of formalization and ease of doing business.