India’s next generation GST reforms: Simplified taxation, stronger growth

By Manish GUPTA

The next-generation Goods and Services Tax (GST) reforms, announced by Prime Minister of India Shri Narendra Modi on Independence Day, August 15, 2025, represent a strategic, principled and citizen-centric evolution of a landmark tax framework. These reforms aim to enhance the quality of life for every citizen in India.

These changes build upon the introduction of GST in July 2017, which was India’s biggest economic reform since liberalisation and was widely regarded as groundbreaking legislation for New India. GST unified the country’s tax system under  “One Nation, One Tax.” It created a common national market, reduced the cascading effect of taxes, simplified compliance and improved transparency. Over the past eight years, GST has steadily evolved through rate rationalisation and digitalisation, becoming the backbone of India’s indirect tax framework.

GST 2.0 : A bold reset

The Next-Gen GST reforms, referred to as GST 2.0, approved by the GST Council under the leadership of Union Finance Minister Smt. Nirmala Sitharaman, comes into effect from September 22, 2025.

These reforms have a multi-sectoral and multi-thematic focus on improving the lives of all citizens and ensuring ease of doing business for all, including small traders and and entrepreneurs. Simultaneously, they are designed to support India’s long-term economic growth.

These reforms mark a transformative milestone, representing a comprehensive reconfiguration of the GST framework in terms of its structure, intent and accessibility. The reforms simplify the current four-tiered tax rate system into a streamlined two-tier rate structure. This new structure includes a 5 percent merit rate, an 18 percent standard rate and a 40 percent demerit rate for luxury and sin goods, aligning India’s GST framework with global best practices.

Guiding pillars

At the core of the reforms are seven guiding pillars. The first pillar is the ongoing consolidation of India’s tax system under the “One Nation, One Tax” model, which is now transitioning to a streamlined two-tier structure focused on 5 and 18 percent tax rates. The second pillar emphasises the rationalisation of rates to ensure fair taxation. The third pillar incorporates technology to simplify compliance, featuring instant registration for small businesses, digital invoicing and AI-based risk detection.

The fourth pillar places consumers at the centre of the reform, ensuring that essential items such as milk and bread are exempt from tax, while common household goods like soap, shampoo, toothpaste and bicycles are taxed at just five percent.

Aspirational goods, including televisions, dishwashers and air conditioners, have seen a tax reduction from 28 to 18 percent, and small cars and two-wheelers now fall into the lower tax bracket.

The fifth pillar focuses on micro, small and medium enterprises, which have long been regarded as the backbone of India’s economy. Labour-intensive industries, such as textiles and handicrafts, are expected to benefit significantly from these reforms, reinforcing the government’s “Make in India” initiative.

The sixth pillar strengthens fiscal federalism by ensuring that all states have a more reliable revenue base. Lastly, the seventh pillar acknowledges that lower indirect taxes lead to higher household savings, which can subsequently fuel consumption, bolster industry and create a virtuous cycle of growth.

Global implications

GST reforms enhance India’s international trade by unifying the domestic market, fostering a more competitive manufacturing base, and streamlining export processes through quicker Input Tax Credit refunds. In the midst of global trade uncertainty, GST 2.0 offers greater stability within the industry, allowing stakeholders to pursue rapid economic growth.

These reforms simplify tax structures, reduce compliance costs and improve transparency, making it easier for both Indian businesses and foreign investors to navigate the tax system, thereby boosting confidence in the Indian market.

The integration of the GST network with ICEGATE (the customs portal) facilitates seamless data sharing, accelerates import/export processing and automates the validation of import credits, significantly speeding up cross-border trade.

For India’s trade and investment partners, this translates to lower prices for a large majority of Indian exports. The reforms are expected to positively impact India’s global partners, such as Ghana, by increasing demand for goods and services, creating a more dynamic economic environment, providing cheaper imports, and enhancing smoother supply chains.

Manish Gupta is the High Commissioner of India to Ghana

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