India’s GST 2.0 reforms: bold, scientific and historic in equal measures

On 15th August 2025, Prime Minister Narendra Modi had, during his Independence Day speech, spoken about the intention to carry out the Next-Generation reforms in Goods and Sales Tax (GST).

Working with a sense of purpose, the GST Council comprising the Union and the States collectively agreed in early September 2025 to GST rate cuts and reforms, which is expected to benefit the common man, farmers, MSMEs, middle-class, women and youth.

Welcoming these reforms, Prime Minister Modi observed, “The wide ranging reforms will improve lives of our citizens and ensure ease of doing business for all, especially small traders and businesses.”

The pith and substance of the GST reforms

At its core these reforms simplify the processes related to India’s GST system with a two tier tax structure (5 % and 18 %) which also facilitates filing through efficient technology.

The higher 40% rate is reserved for goods such as tobacco and luxury products.

In case of essential goods and daily use items, the drop in GST rates is considerable and the concomitant benefits are expected to reach the consumers efficaciously.

In case of high value items like cars and appliances the rates are going down from 28% to 18%.

It is reasonable to expect therefore that the arrival of lower taxes would encourage more consumption and give a boost to industrial and economic growth.

The way forward

The revised rates and exemptions will come into effect from 22nd September 2025, ensuring timely relief for the common man, households, farmers, and businesses.

Only exception will be specified goods namely, cigarettes, chewing tobacco products like zarda, unmanufactured tobacco and beedi, for which the existing rates of GST and compensation cess will continue to apply and the new rates will be implemented at a later date to be notified, based on discharging of entire loan and interest liabilities on account of compensation cess.

In other words, effective from 22nd September 2025, the reforms are expected to build a simpler, fairer, and growth-oriented GST framework, ensuring both ease of living for people and ease of doing business for enterprises.

GST 2.0 has the potential to make India more competitive

The emphasis on achieving simplicity of tax structure has been a guiding lodestar for India ever since the GST framework was introduced in the last decade.

With the learnings of the past eight years, the governments at the Union and in the States and Union Territories have worked scientifically and constructively to address new challenges posed by the international ecosystem and other domestic constraints to create an advanced system.

It is accepted wisdom that a simpler and unified tax system will cut trade costs and boost exports.

Indian economy can utilise these reforms to make the country a stronger player in the global market.

At a 5 % rate of tax, it becomes an attractive proposition in any geography.

This will also further the impetus for inclusive growth within India. The initial feedback from Indian industry is one of excitement and determination. These reforms, occuring in the immediate aftermath of the announcement of Q1 2025 GDP growth rate of 7.8% for the Indian economy, reinforces our collective commitment to ensuring the stability and promoting the prosperity of the international system.

This approach is an article of firm conviction for Indian foreign policy and is expected to enrich all its bilateral relationships including with the friendly Kingdom of Bahrain in the years to come.

(The author is the Ambassador of India to the Kingdom of Bahrain since August 2023. He has previously served as Director General for Economic Diplomacy in the Indian Ministry of External Affairs from 2017 to 2018.)