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GST 2.0: Group of Ministers Approves Reforms to Simplify Tax System

Strategic Insights

— 1 min read

The much-anticipated overhaul of the Goods and Services Tax (GST) in India has taken a significant step forward with the Group of Ministers (GoM) on GST rate rationalization agreeing to the Centre's proposal to reduce the tax slabs from four to two main categories of 5% and 18%. This reform, dubbed GST 2.0, aims to make the tax system more straightforward, easier to comply with, and less burdensome for households and businesses. The new structure will see the 12% and 28% slabs scrapped, with most goods and services falling under the 5% or 18% brackets. A higher 40% levy will continue on a limited list of "sin goods" such as tobacco and luxury items.

Key Takeaways:

  • The GoM agreed to reduce the four-rate system to two main slabs of 5% and 18%, marking the beginning of GST 2.0.
  • The 12% and 28% slabs will be scrapped, with most items shifting to the lower 5% slab or higher 18% rate.
  • 99% of items previously taxed at 12% will now be taxed at 5%, and nearly 90% of items under the 28% slab will shift to 18%.
  • Luxury cars will be brought under the 40% tax bracket.
  • GST on medicines, processed food, clothing, footwear, and several household products will be reduced to 5%.
  • Large household appliances, televisions, and other durable goods will fall under the 18% rate, potentially reducing prices for middle-class families.
  • The Centre's plan to exempt health and life insurance for individuals from GST could reduce government revenues by about Rs 9,700 crore every year.
  • States have requested a mechanism to ensure that insurance companies pass on the GST exemption to customers.

Statistics:

  • 99% of items previously taxed at 12% will now be taxed at 5%.
  • Nearly 90% of items under the 28% slab will shift to 18%.
  • Luxury cars will be taxed at 40%.
  • A higher 40% levy will continue on a limited list of "sin goods" such as tobacco and luxury items.
  • The exemption of health and life insurance for individuals from GST could reduce government revenues by about Rs 9,700 crore every year.

Sources:

  • (https://www.thenorthlines.com/2025/01/24/gst-2-0-group-of-ministers-approves-reforms-to-simplify-tax-system/)
  • Contify.com
  • "GST 2.0: Group of Ministers Approves Reforms to Simplify Tax System", The Northlines, 2025.

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