GST 2.0 Comes into Effect: Simplifying compliance and reshaping India’s indirect tax regime

With the introduction of GST 2.0 on September 22, 2025, India’s indirect taxes system enters a new phase. The reform aims to resolve the inefficiencies that surfaced during the previous phase of GST, rationalise tax slabs, and expedite compliance. Although the GST 2017 unification of indirect taxes was historic, its practical issues—such as the need for an updated model—were brought to light by its various slabs, complex return filing, and input tax credit disputes. The goals of GST 2.0 are to increase predictability, transparency, and business-friendliness.

The Need for GST 2.0

The GST system’s inherent flaws were exposed over time. Small and medium-sized businesses (SMEs) in particular had to deal with onerous compliance regulations, which raised their expenses. Multiple slabs continued to perplex consumers, which frequently resulted in pricing changes. While systemic flaws promoted tax fraud, states regularly voiced concerns about revenue-sharing with the Centre. To address these issues and move the system closer to its initial goal of “one nation, one tax,” GST 2.0 was implemented.

Its key aims include:

Slab structure simplification for simpler classification

Lowering taxpayers’ burden of compliance

Bolstering the process for the input tax credit (ITC)

Strengthening the GST Council to ensure improved cooperation between the Centre and the States

Key Features of GST 2.0

The rationalisation of tax slabs into four categories is the most significant adjustment brought forth by GST 2.0. Mass consumption products are taxed at 12%, necessities at 5%, the normal rate at 18%, and luxury and sinful goods at 28%. Businesses and consumers benefit from more clarity brought about by this streamlined framework.

The system of a single monthly return has enhanced compliance. The GSTN interface, which uses AI, is now better able to identify mistakes and fraudulent submissions. The improved ITC system, where invoices are properly matched to enable quick verification and lower bogus claims, is another significant innovation. States get more flexibility within predetermined bounds thanks to a redesigned compensation scheme.

Impact on Economy and Governance

Easier compliance and quicker refunds should result in lower expenses for businesses. More consistent pricing will benefit consumers, especially for necessities. Digital supervision promises to increase revenue collection and decrease tax evasion for the government. Crucially, by establishing a more equitable relationship between the federal government and the states via a redesigned GST Council, GST 2.0 enhances cooperative federalism.

Criticism and Challenges

GST 2.0 has a number of obstacles in spite of its potential. Short-term declines in revenue could result from rationalised rates. The greater reliance on digital technology needed for compliance may be too much for smaller dealers to handle. Concerns over their budgetary independence under the updated framework are still being voiced by states. Taxpayer education is another urgent need. The advantages of simplification could not be felt by all sectors of the economy if awareness campaigns are unsuccessful.

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About the Author: Jyoti Verma