Series 123 – GST 2.0 – Simplification with Strategic Intent

The government has unveiled what it calls GST 2.0—a structural reset of India’s indirect tax system. The framework now rests on two broad slabs of 5% and 18%, with a higher 40% rate carved out for luxury and sin goods. Importantly, life and health insurance premiums have been exempted, signaling intent to ease financial protection costs for households. The changes come into effect on September 22, 2025, just ahead of the festive season—a deliberate timing to spur consumption.

Economic Impact – Consumption Tailwinds and Cost Relief
The move is expected to act as a stimulus across essentials and consumer durables. Lower effective prices could lift GDP growth by around 0.6% from GST 2.0 alone, and as much as 1.6% when combined with recent tax reliefs. Headline CPI inflation may ease by 20–25 bps, with the steepest relief coming from essentials like food and textiles. Strategically, GST 2.0 arrives at a time when global trade shocks, including US tariff risks, are weighing on exporters. A rationalized tax regime should reduce input costs for manufacturers, boost competitiveness, and anchor domestic demand as a counter-cyclical buffer. On the fiscal front, the gross annual revenue loss from rationalisation is estimated at ₹85,000 crore on average, with around ₹45,000 crore in FY26. SBI estimates a revenue gap of ~₹3,700 crore in FY26, but expects higher consumer spending and improved compliance to offset much of the shortfall.

Looking Ahead
For MSMEs and consumption-heavy sectors, GST 2.0 could prove a durable growth lever. Analysts broadly view this reform not as a one-off consumption nudge, but as a reset that makes India’s tax regime simpler, more predictable, and more supportive of long-term investment.

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