GST reforms are set to reshape India’s tax landscape by Diwali 2025, with Prime Minister Narendra Modi’s announcement signaling a major overhaul. The new GST 2.0 regime aims to simplify the tax structure, making it more consumer-friendly and efficient. This move follows the recent Union Budget 2025’s decision to make income up to ₹12 lakh tax-free under the new tax regime, further easing the burden on middle-class taxpayers.
Current vs. Expected New GST Structure
The current GST system has four main slabs: 5%, 12%, 18%, and 28%. There are also special rates for items like gold, polished diamonds, and rough diamonds. The new regime, based on a proposal sent to the Group of Ministers (GoM), is expected to streamline this into a simpler two-slab model.
| Aspect | Current GST Regime | Expected Changes under GST 2.0 |
| GST Slabs | 5%, 12%, 18%, 28% | Two main slabs: 5% and 18% |
| Special Rates | 3% on gold/jewelry, 1.5% on polished diamonds, 0.25% on rough diamonds | Likely to continue unchanged |
| Compensation Cess | Applied on tobacco, aerated drinks, motor vehicles | May be phased out, creating fiscal space |
| Items Getting Cheaper | N/A | Electronics (ACs, TVs, fridges), cement, small FMCG sachets, health & life insurance |
| Items Staying Expensive | Tobacco, pan masala, online gaming | A new 40% slab for luxury/sin goods; online gaming treated as demerit goods |
| Items with Unclear Rates | Automobiles, petrol, diesel, etc. | No clarity yet; may remain outside GST |
| Sectoral Beneficiaries | N/A | Textiles, fertilizers, renewable energy, agriculture, handicrafts, health, insurance |
Key Highlights of the Proposed GST Revamp
1. Rate Rationalization
The biggest change is the simplification of tax rates. The 12% slab is expected to be abolished, with 99% of its items likely moving to the lower 5% slab. Similarly, most items currently in the 28% slab, such as household electronics (ACs, TVs, refrigerators) and cement, are anticipated to shift to the 18% slab, making them significantly more affordable.
A new 40% tax slab is also being considered for luxury and “sin” goods like tobacco and pan masala. Online gaming is also expected to fall under this high-tax category.
2. Structural Reforms
The reforms aim to correct “inverted duty structures” where the tax on inputs is higher than on finished products, reducing the accumulation of input tax credit. The government also plans to resolve classification issues to simplify compliance and minimize disputes.
3. Ease of Living
The new system will leverage technology to enhance user experience. Key improvements include:
- Seamless Registration: A technology-driven and time-bound process for businesses, especially small enterprises.
- Pre-filled Returns: Reducing manual data entry and mismatches.
- Automated Refunds: Faster processing of refunds for exporters.
What’s Next?
The GST Council is scheduled to meet twice in September to discuss the GoM’s recommendations. The new GST law and rates are expected to be officially rolled out by Diwali 2025. This move is seen as a major step toward building industry confidence and creating a more equitable and efficient tax system for all sections of society.