GST 2.0 Reforms in 2025: UPSC Syllabus Relevance & Notes

GST 2.0 has been introduced with a simplified two-slab structure of 5% and 18%, along with a 40% demerit rate. Key reforms include tax cuts on essential goods, healthcare services, and automobiles.

• Part of the Indian Economy (UPSC GS-3 syllabus).
• Important for Current Affairs (Prelims + Mains).
• Connects with Polity & Governance (role of GST Council, cooperative federalism).
• Useful for Essay & Ethics (equity, relief for the common man, inclusive growth).
• Potential for Prelims MCQs on rates, structure, and GST Council.

The Goods and Services Tax (GST), introduced through the 101st Constitutional Amendment Act in 2017, is a unified indirect tax on the supply of goods and services in India. It replaced multiple central and state taxes with one unified system. 

Key Features of GST

• Dual Structure – GST has two parts: Central GST (CGST) and State GST (SGST). For transactions between states, Integrated GST (IGST) is applied.

• GST Council – The main decision-making body for GST rates and policies.

  - Set up under Article 279A of the Constitution.

  - Works as a joint forum of the Centre and the States.

  - Chaired by the Union Finance Minister, with state finance ministers as members.

• GST Network (GSTN) – An online system that helps taxpayers file returns, pay taxes, and manage compliance.
• Threshold Exemption – Small businesses below a fixed turnover limit don’t need to pay GST, reducing paperwork for micro enterprises.

Over the last eight years, GST has evolved through rate rationalisation and digitalisation, becoming the backbone of India’s indirect tax framework. 

Also read: Top 15 Important Constitutional Amendments for UPSC Prelims

The 56th GST Council meeting, chaired by Finance Minister Nirmala Sitharaman, approved major reforms under GST 2.0. Now, India is moving towards Next-Gen GST reforms (GST 2.0) to make the system simpler and more beneficial for all. 

Aim of the Latest GST Reforms: 

• The focus is on relief for the common man, ease of doing business, and support for small traders.
• The reforms aim to directly benefit farmers, MSMEs, women, youth, and middle-class families.
• These changes are also expected to strengthen India’s long-term growth story.

Also cover this current topic here: Ethanol Blending in India: E20 Policy, Benefits, Implementation, and Challenges

The new GST 2.0 aims to make the tax system simpler and fairer. It introduces a two-slab structure of 5% and 18%, while keeping a 40% tax on luxury and sin goods like tobacco, pan masala, aerated drinks, and high-end cars.

1. Household & Food

• Essentials (soaps, toothpaste, shampoos, Indian breads, paneer, UHT milk): 5% or Nil.
• Packaged food (namkeens, pasta, chocolates, sauces, coffee): 12–18% → 5%.
• Consumer durables: TVs (>32”), ACs, dishwashers: 28% → 18%.

2. Housing & Construction

• Cement: 28% → 18%.
• Marble, granite, sand-lime bricks: 12% → 5%.
• Bamboo flooring, wooden pallets: 12% → 5%.

3. Automobiles

• Two-wheelers ≤350cc, small cars, buses, trucks, auto parts: 28% → 18%.

4. Agriculture

• Tractors: 12% → 5%.
• Farm machinery (harvesters, sprinklers, drip irrigation, bee-keeping): 12% → 5%.
• Bio-pesticides & natural menthol: 12% → 5%.
• Fertiliser inputs corrected to avoid inverted duty.

5. Services

• Hotels ≤ ₹7,500/day: 12% → 5%.
• Gyms, salons, barbers, yoga: 18% → 5%.

6. Toys, Textiles & Handicrafts

• Manmade fibre: 18% → 5%; Manmade yarn: 12% → 5%.
• Handicraft idols, statues, toys: 12% → 5%.
• Paintings, sculptures: 12% → 5%.

7. Education

• Books, pencils, erasers, crayons: 0% GST.
• Geometry boxes, school supplies: 12% → 5%.

8. Healthcare

• 33 life-saving drugs, diagnostic kits: 12% → Nil.
• Ayurveda, Homoeopathy, Unani medicines: 12% → 5%.
• Medical oxygen, thermometers, surgical instruments: 12–18% → 5%.
• Spectacles, corrective lenses: 28% → 5%.

9. Insurance & Financial Protection

• GST exemption on life & health insurance premiums (individual, family floater, senior citizen).
• Supports Mission Insurance for All by 2047.

The Next-Generation GST reforms are designed not just to reduce tax rates, but to create a virtuous cycle of growth.

• Lower Prices, Higher Demand: Cheaper goods and services increase household savings and stimulate consumption.
• Support for MSMEs: Reduced rates on inputs like cement, auto parts, and handicrafts lower costs and make small businesses more competitive.
• Ease of Living: A two-rate structure means fewer disputes, quicker decisions, and simpler compliance.
• Wider Tax Net: Simpler rates encourage compliance, expanding the tax base and improving revenues.
• Support for Manufacturing: Correcting inverted duty structures boosts domestic value addition and exports.
• Revenue Growth: As seen in past reforms, lower rates with better compliance increase collections.
• Economic Momentum: Lower costs → higher demand → larger tax base → stronger revenues → sustainable growth.
• Social Protection: Exemption of GST on insurance and essential medicines strengthens household security and access to healthcare.

Recent Achievement: In 2024–25, GST achieved its highest-ever gross collection of ₹22.08 lakh crore, showing a 9.4% yearly growth. The average monthly collection was ₹1.84 lakh crore.

GST 2.0 is a big step toward a simpler and fairer tax system, but more can be done to make it effective and inclusive.

• Simplify further by reducing exemptions and keeping rates clear.
• Boost digitalisation through a stronger GSTN for easier filing. 
• Support small businesses by lowering the compliance burden.
• Strengthen the federal balance between the Centre and the States.
• Promote awareness by training taxpayers, especially in rural and SME sectors.
• Enhance global competitiveness by aligning GST with international best practices.

These steps will ensure GST continues to drive relief, simplification, and growth for all. For UPSC, topics like GST reforms, reforms in GST, tax reforms, GST 2.0, and Goods and Services Tax remain highly relevant under the Economy and Polity syllabus.

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