“Everything is difficult in the beginning….” said a young retailer Ajay Kumar who deals with cosmetics back in July, 2017 when the Goods and Services Tax (GST) was launched in the hopes of unifying India’s complex tax structure into a single, streamlined system. Prior to GST, both the Centre and the States charged a patchwork of indirect taxes, including excise duty, service tax, VAT, octroi, entry tax, and luxury tax. This resulted in a cascading effect, regulatory obstacles, and fragmentation of the national market. Thus, GST was designed to be both an economic and federal reform..
Despite constraints such as complexity in practice, compliance burden, and reservations about state autonomy, GST gradually ushered in a new era of “One nation, one tax”. It provided significant assistance to micro, small, and medium-sized businesses by lifting the threshold to 40 lakhs and providing better access to credit through the Trade Receivables Discounting System (TReDS). According to a Finance Ministry study, GST helped households save at least 4% on overall monthly expenses as they spent less on everyday necessities. In 2024-25, GST collected ₹22.08 lakh crore, a 9.4% increase from the previous year, significantly boosting Government’s revenue.
However, criticism grew over time. GST was touted as a “Good and Simple Tax”, but in actuality, having five slabs undermined the fundamental objective of simplification. High GST rates on certain goods/services, such as cement, air conditioners, washing machines, automobiles, and other products under the 28% slab, drew widespread opposition. Cement remained a major concern, with a 28% GST rate despite being a critical infrastructure input. There were also social debates, as sanitary pads were first taxed at 12% while condoms were tax-free, resulting in outrage; pads were eventually tax-free in 2018. Hotel rates, cinema tickets, and restaurant prices were initially high (18-28%), but were ultimately rationalised.
From the ramparts of Red Fort on 15th August 2025, Prime Minister Shri Narendra Modi announced the government’s commitment to Next Gen GST reforms which were later announced and approved by the GST Council on 03 September, 2025 as a strategic, principled, and citizen-centric evolution of a landmark tax framework, which will enhance the quality of life of every last citizen. Amid rising global turbulence, from trade wars to market volatility, ‘GST 2.0’ aims to emerge not just as a domestic tax reform, but as a strategic buffer, lowering inflation, stimulating demand, and reinforcing investor confidence.
The rationalisation of the existing four-tiered tax rate system into a citizen-friendly ‘Simple Tax’, a two-rate structure with a Standard Rate of 18% and a Merit Rate of 5%, simplifies the structure for businesses while also making it consumer-friendly. The reduction of GST from 18% OR 12% to 5% on a wide range of everyday items such as hair oil, toilet soap bars, shampoos, toothbrushes, toothpaste, bicycles, tableware, kitchenware, other household articles, and mass consumption items directly eases household budgets and helps to sustain domestic demand, thereby powering India’s growth engine.
GST 2.0 additionally signals a change towards more human-centered governance, with a focus on healthcare and social security. GST exemption applies to all life insurance plans (term, ULIP, endowment) and health insurance policies (including family floaters and senior citizens). This measure lowers prices by eliminating the 18% GST burden, making insurance more affordable for the middle class, aged, and vulnerable households. The long-term objective is to increase India’s low insurance penetration and provide financial security against health and life risks. By completely abolishing GST on critical drugs, treatment for the most disadvantaged patients becomes more affordable and equitable.
While GST 2.0 eases taxes on essentials like food, medicines, and insurance, it preserves steep rates on pan masala, gutkha, tobacco, and cigarettes. This dual approach protects public health, discourages harmful consumption, and generates revenue that can be reinvested in welfare schemes, striking a balance between economic relief and social responsibility.
Through GST 2.0, the government seeks to lower input costs and expand rural employment to strengthen the backbone of India’s economy Agriculture still supports over 45% of India’s workforce according to the Periodic Labour Force Survey 2023–24. Lowering tax on machinery such as tractors, soil preparation machinery, harvesting/threshing equipment, compost machines etc. from 12% to 5%. reduces costs for farmers, encourages mechanisation, and improves productivity. Highly labour-intensive industries such as cottage industries, artisans, and rural clusters etc. witnessed a GST cut from 12% to 5% in an effort to protect traditional livelihoods, and make Indian handicrafts globally competitive. GST on Cement was reduced from 28% to 18%. The construction sector directly employs more than 70 million people. Lowering cement tax reduces construction costs, supporting affordable housing, infrastructure projects, and employment generation.
GST 2.0 is not just about simplifying taxes, it’s also paving the way for a greener India. By lowering GST on solar panels, PV cells, and wind turbines, the reforms reduce project costs, support domestic manufacturing, and help farmers access affordable solar pumps. Cutting taxes on effluent treatment services encourages industries to adopt cleaner waste management, creating green jobs in the process. Biodegradable bags become cheaper, helping reduce plastic pollution and fostering innovation in compostable materials. Even buses and commercial vehicles see lower GST, promoting shared transport, modern fleets, and fewer emissions. Together, these steps make India cleaner, greener, and more sustainable.
While GST 2.0 simplifies taxation and eases costs for citizens, careful monitoring is needed. Revenue shortfalls, sector-specific disputes, and implementation challenges could dampen its impact if not managed efficiently. Governmnet must balance simplicity with enforcement, ensuring that the promise of a ‘Good and Simple Tax’ translates into real benefits across India’s economy.
In essence, GST 2.0 represents a bold stride toward a simpler, citizen-friendly, and socially responsible tax system. By easing the burden on essentials, promoting green energy, supporting labour-intensive sectors, and incentivising preventive and curative healthcare, it addresses economic, environmental, and social imperatives in one reform. While challenges remain in implementation and revenue management, the reforms lay a robust foundation for India’s future growth, sustainability, and inclusivity, reminding us that thoughtful fiscal policy can be both a catalyst for prosperity and a tool for social good.
REFERENCES
- India Today Web Desk. (2017, July 4). GST impact: Traders divided over new tax reform. India Today.
- Press Information Bureau, Government of India. (2025, June 30). Record gross GST collection in 2024–25; Survey finds 85% industry approval [Press release]. Press Information Bureau.
- The Times of India. (2025, August 27). Simplify GST system to boost compliance: GCCI writes to FM. The Times of India.
- Press Information Bureau, Government of India. (2025, September 3). Recommendations of the 56th Meeting of the GST Council [Press release]. Press Information Bureau.
- Press Information Bureau, Government of India. (2025, September 4). GST rationalisation for a competitive economy, thriving MSMEs, and consumer welfare [Press release]. Press Information Bureau.
- Sikarwar, D., Pandey, V., & Sruthijith, K. K. (2025, September 6). Lower GST will boost India’s economy significantly, says FM Nirmala Sitharaman. The Economic Times.
- Pandey, J. N. (2025, September 5). GST 2.0: Tax cuts on cement, daily-use items hailed. The Times of India.
- Press Information Bureau. (2025, September 4). Union Minister Shri Bhupender Yadav hails Next Gen GST Reforms and terms them as, “GST Reforms for a Green India”. Ministry of Environment, Forest and Climate
Author Name- Kumar Astik is a 2nd-year student in the B.A. LL.B (Hons.) program at the National University Of Study and Research in Law, Ranchi (NUSRL).
