India’s indirect taxation system has entered a new phase with the rollout of reforms under the Goods and Services Tax (GST) 2.0, marking a significant simplification of tax structures and widening of benefits for citizens and businesses. At its 56th meeting, the GST Council approved sweeping changes that aim to ease compliance, rationalise rates, and reinvigorate growth across key sectors of the economy.
The journey to this point has been a long one. In the pre-GST era, when Value Added Tax (VAT) prevailed, there was no uniformity across states. Each state imposed its own levies such as entry tax, creating a fragmented and burdensome system. Inconsistent tax returns, audits, and penalties compounded the difficulties for businesses, while weak input tax credit provisions enabled misuse. The absence of central oversight left loopholes that facilitated evasion. Double taxation with service tax and frequent changes in rates distorted markets further.
GST was introduced in 2017 with the vision of “One Nation, One Tax” to unify India into a single market. Over the past eight years, it has streamlined interstate trade, removed cascading taxes, and established uniform procedures for compliance and enforcement. The reform has seen broad acceptance. A Deloitte survey earlier this year found that 85 per cent of respondents, including micro, small and medium enterprises (MSMEs), were satisfied with its implementation.
The taxpayer base has expanded rapidly, from 66.5 lakh in 2017 to 1.51 crore in 2025. Gross GST collections in FY 2024–25 touched ₹22.08 lakh crore, nearly double in four years, growing at a compound annual growth rate of over 18 per cent. Monthly revenues averaged ₹2,04,500 crore this year compared to ₹82,000 crore in FY 2017–18. Rising compliance and collections have been interpreted as indicators of a more formalised economy and greater confidence in the system.
Building on this foundation, GST 2.0 is intended to simplify structures further while ensuring that reforms directly benefit citizens. Among the most notable measures is the abolition of the 12 per cent and 28 per cent slabs. The system will now be streamlined into just two key rates, 5 per cent and 18 per cent, reducing complexity and making taxation more predictable. Analysts have described the reform as silent yet profound, with the potential to boost consumer sentiment and reinforce the trajectory of India’s equity markets.
Motilal Oswal Financial Services, in a research note, described the Council’s decision as the first major reform of the current government term, with the ability to support consumption and capacity building at a time of global uncertainty. By simplifying the tax structure, the reform is expected to stimulate demand, improve competitiveness, and reduce costs for both consumers and businesses.
The measures are likely to impact multiple sectors including automobiles, consumer durables, fast-moving consumer goods, cement, hotels, retail, renewable energy, insurance, and financial services. By resolving inverted duty structures in segments such as textiles and fertilisers, the Council has sought to remove bottlenecks and make the input tax credit process easier. This, in turn, will help micro and small enterprises that have long struggled with blocked credits, enhancing ease of doing business.
In a move targeted at affordability, the Finance Ministry announced the exemption of GST on all individual life insurance policies, including term life, unit-linked insurance plans (ULIPs), and endowment policies. The step is expected to make insurance more accessible and increase coverage, aligning with the government’s goal of improving financial security for citizens.
Officials have described GST 2.0 as more than a tax reform, framing it instead as a growth reform. By stimulating consumption and easing compliance, the system is designed to kick-start a virtuous cycle of economic activity. Lower consumer prices, wider insurance penetration, and stronger demand across industries are projected outcomes.
The reforms are also intended to strengthen equity markets. With consumption-led growth feeding into corporate earnings, domestic-focused stocks in multiple sectors are expected to benefit. Analysts say the simplification of the tax regime provides long-term clarity to investors and supports India’s positioning as a stable and competitive market.
The GST Council has emphasised that the reforms are not just aimed at large industries but also at the common man, farmers, and labour-intensive sectors such as agriculture and health. These areas are considered central to driving inclusive growth and ensuring that reforms reach the grassroots.
Prime Minister Narendra Modi has indicated that the government will continue to pursue reforms across multiple domains to unleash what he described as the “animal spirits” of the economy. By shielding the domestic market from global headwinds and creating conditions for sustained consumption, GST 2.0 is intended to reinforce India’s growth story.
Critically, the reforms also focus on reducing compliance burdens. By unifying rates, standardising procedures, and addressing longstanding anomalies, the government hopes to make compliance less complex for small traders and businesses. For MSMEs in particular, the ease of claiming input credits and predictable tax slabs could mean reduced costs and greater efficiency.
Observers note that the success of GST 2.0 will depend on smooth implementation and sustained coordination between the Centre and states. The experience of the initial GST rollout in 2017 showed that transition challenges are inevitable but surmountable. With technological improvements and a larger taxpayer base, officials believe the system is better equipped to manage the shift this time.
As GST marks its eighth anniversary, the reform has already established itself as one of the most significant milestones in India’s economic policy. The transition to GST 2.0 signals continuity with change, a recognition of what has worked so far, and a bold step towards further simplification. For citizens, it means potentially lower costs and improved services. For businesses, it promises predictability and competitiveness. For the government, it offers higher revenues with fewer distortions.
The reforms are expected to define the next phase of India’s growth, linking tax simplification with broader objectives of job creation, investment, and resilience. With collections rising, compliance improving, and structures becoming simpler, GST 2.0 may well be remembered as the moment the reform matured into a driver of both economic ease and national growth.
