India’s Goods and Services Tax (GST) journey has been nothing short of transformative. Dismissed at its inception in 2017 by critics as the “Gabbar Singh Tax”, it was accused of burdening citizens and businesses alike. In reality, the chaotic pre-GST regime was the real Gabbar Singh Tax, a fragmented mesh of excise, VAT, and service taxes that bred inefficiency, rent-seeking, and inflated costs. Trucks idled at state borders, small firms juggled multiple filings, and consumers paid the price. GST replaced this with a unified system, which lowered taxes on essentials and created a more rational framework. And now, with GST 2.0, which comes into effect on September 22, India has taken a decisive step forward, streamlining slabs and cutting rates.
When it was launched in 2017, GST carried a four-slab design (5 per cent, 12 per cent, 18 per cent, 28 per cent), which reflected a compromise that was necessary to secure consensus among states, all of whom were not willing to bear revenue losses that could have occurred under the new regime. That compromise helped India transition into the GST era, but it also bred complexity and disputes that ran against GST’s founding philosophy of simplicity. GST 2.0 represents a natural course correction — two main slabs (5 per cent and 18 per cent) plus a demerit rate of 40 for luxury and sin goods. The Council’s ability to streamline now reflects both maturity and confidence that compliance and revenues have stabilised.
This reform is well-timed. Global uncertainties and tariff wars are creating headwinds for businesses. By reducing compliance burdens, lowering working capital locks, and easing tax rates across mass-consumption and labour-intensive sectors, GST 2.0 provides supply-side support, when firms need support. It amplifies positive externalities — fewer disputes, simpler processes, and a lighter compliance load free up managerial capacity for investment and growth. Together with other structural reforms, GST 2.0 is part of a broader push for positioning India as a competitive and stable production base amid global volatility.
Everyday essentials and mass-consumption goods have shifted to the 5 per cent slab, while key industrial inputs moved to 18 per cent, reducing costs for households and firms alike. Over 33 lifesaving drugs were exempted entirely, alongside staples like milk, paneer, and chapatis. Automobiles, cement, and electronics saw sharp tax cuts, driving affordability and sectoral growth. The rolling out ahead of the festive season also ensures maximum impact on household spending.
| Particulars | Pre-GST Rates | GST (2017-25) | GST 2.0 (Rates from Sept 22, 2025) | |
| 1 | Tooth Powder | 17 per cent | 12 per cent | 5 per cent |
| 2 | Hair Oil, Shampoo and Toilet Soaps | 27 per cent | 18 per cent | 5 per cent |
| 3 | Utensils | 18.5 per cent | 12 per cent | 5 per cent |
| 4 | Sewing Machines | 16 per cent | 12 per cent | 5 per cent |
| 5 | Fertilisers | 18.5 per cent | 5 per cent -18 per cent | 5 per cent |
| 6 | Tractors | 18.5 per cent | 12 per cent | 5 per cent |
| 7 | Tractor Tyres and Parts | 18 per cent-20 per cent | 18 per cent | 5 per cent |
| 8 | Pre packaged Namkeens | 16-18 per cent | 12 per cent | 5 per cent |
| 9 | Pencil Sharpners | 18.5 per cent | 12 per cent | Nil |
| 10 | Small Cars <1200cc | 28 per cent | 28 per cent | 18 per cent |
This progression demonstrates how households have steadily benefited through reduced effective tax rates over time, reflecting both a structural simplification and the emergence of an effective tax rate far below earlier levels. SBI Research estimates the weighted average effective GST rate has now declined to ~9.5 per cent from 14.4 per cent at inception. Of the 453 goods where rates were changed under GST 2.0, 413 (91 per cent) saw a decrease, with nearly 295 goods moving to 5 per cent or NIL from 12 per cent earlier, a decisive tilt towards household relief.
As per SBI Research, the key projections of the GST reforms indicate an initial direct consumption boost of Rs 70,000 crore, derived from Rs 85,000 crore GST foregone, assuming a marginal propensity to consume of 0.7. The total additional aggregate demand is projected to reach Rs 1.98 lakh crore due to the multiplier effect as new spending circulates through the economy.
While the government pegs the net fiscal impact at about Rs 48,000 crore annually, SBI’s research anticipates an almost minimal net revenue loss of just Rs 3,700 crore, banking on increased economic buoyancy and an expanded tax base to bridge the gap. When combined with concurrent income tax reforms, the total additional demand could touch Rs 5.31 lakh crore, adding about 1.6 per cent of GDP. This powerful stimulus translates directly into a 100-120 basis point uplift in the national growth rate, potentially pushing GDP growth to 6.5 per cent in FY26 and as high as 7 per cent in FY27.
Beyond just rate cuts, GST 2.0 also focuses on improving the way the system works. Registration has been made automatic, refunds are processed faster, and provisional input credits are allowed, together easing the pressure on working capital for businesses. Longstanding issues like inverted duty structures are being resolved, giving relief to sectors that faced cost disadvantages earlier. For MSMEs, the burden of paperwork is lighter, with simpler filing options and better access to finance through platforms like TReDS that enable quicker invoice discounting. On the logistics side, the gains of the ‘One Nation, One Tax’ framework are being deepened, as digital systems further reduce inter-state delays and improve efficiency across supply chains.
Most reforms are iterative. GST itself was an improvement over the fractured pre-2017 system, and GST 2.0 is a step closer to simplicity and fairness. As compliance deepens, further policy refinements can follow — streamlined dispute resolution via the GST Appellate Tribunal, faceless assessments, better ITC reconciliation, and data-driven policymaking through GSTN analytics. Proposals like Aadhaar-linked Dynamic Relief Cards for targeted rebates could make the system even more inclusive.
GST 2.0, represents a landmark step towards creating a simplified, fairer, and growth-oriented indirect tax system in India. By raising household purchasing power through thoughtful tax rate rationalisation and delivering broad-based structural and process reforms, GST 2.0 rigorously supports consumption, industrial growth, and overall economic vibrancy. This next-generation GST will be a defining catalyst for an inclusive Atma Nirbhar Bharat. It will foster ease of living and boost economic momentum across sectors in the current geopolitical environment.
The writer is Part-Time Member, EAC-PM, and a Professor of Finance
