Catalyst for indirect tax regime

The much-anticipated Goods and Services Tax (GST) 2.0 reforms have been formally announced by the GST Council.

- Mukesh Butani

The 12% and 28% GST slabs were eliminated following its decision. The Council, in continued bipartisanship, decided to effect rate rationalisation, providing a fillip to most sectors and drivers of our economy. Since its inception, the GST rate framework has remained a subject of debate, discussions, and deliberations on the fine print and resultant controversies.

Coming close on the heels of the tariff announcement by the Trump administration—which impacts nearly $60 billion worth of exports from India to the U.S.—the GST 2.0 reforms are a bold policy attempt by the government to propel the animal spirits of our economy.

The 56th GST Council meeting, held on Wednesday, heralded a spirit of change, traversing the discourse around long-awaited reforms to the existing framework. Among the most notable developments is the much-anticipated reduction in GST rates, which come into effect from September 22, along with the correction of inverted rate structure and trade facilitation measures for micro, small, and medium enterprises (MSMEs) and small taxpayers.

Key commodities which would see a reduction in GST rate are air conditioners, small cars, buses, motorcycles, staples, lifesaving drugs, medical devices, renewable energy devices, etc. A noteworthy point is the GST reduction on handicrafts, marble, granites, and leather goods, which are areas impacted by the U.S. tariffs, thus giving a fillip to these labor-intensive industries by creating domestic demand.

GST on individual life and health insurance policies has been exempted with the objective of making insurance more affordable and to add an element of fecundity to insurance for the common man. This measure is further aided by widened access to financial security, thereby encouraging greater participation in insurance schemes and ultimately increasing insurance coverage across the country.