GOOD AND SIMPLE TAX

GST 2.0 AIMS TO STREAMLINE COMPLIANCE, BOOST REVENUE, AND SIMPLIFY INDIA’S INDIRECT TAX SYSTEM. WHAT WILL BE THE ROAD AHEAD?

- BY ASHUTOSH KUMAR

WHEN PRIME MINISTER Narendra Modi assumed office for the third time in a row in June last year, he had two key reforms in mind, among others—an overhaul of the Income Tax Act, 1961, and simplification of the Goods and Services Tax (GST).

Within 15 months, both were achieved. The Income Tax Bill, 2025, was approved in the monsoon session of Parliament, and a two-rate GST structure—a standard rate of 18% and a merit rate of 5%, along with a 40% slab for sin goods such as tobacco, paan masala and luxury cars—was rolled out on September 22.

The erstwhile five-rate GST structure (0%, 5%, 12%, 18% and 28%), along with classification issues, had made the tax structure cumbersome, leading to disputes. Businesses had approached the government to simplify the structure as it caused hindrance in investment decisions, and the Prime Minister's Office (PMO) had taken cognizance of the concerns.

Finance minister Nirmala Sitharaman reminisces how Prime Minister Modi continuously prodded her over the past six months about the reforms needed in GST. “What are you doing about GST? PM Modi would ask me,” Sitharaman recalled.

Within 37 days of his Independence Day address, in which Prime Minister Modi announced a Diwali bonanza for citizens, the government implemented the mega GST reforms—almost a month ahead of the festival of lights.

The GST overhaul exercise was much beyond rate tinkering, wherein almost 400 items have been shifted to lower rates. Measures pertaining to ease of doing business—refunds within three days, faster registration, correction of the inverted duty structure (IDS)—have been taken. From November 1, the government is targeting to process about 90% of the provisional refunds within three days. The moves come as a major reprieve across sectors. Textiles and leather are particularly going to benefit from the correction of the inverted duty structure, and GST 2.0 is also likely to provide a major fillip to consumption.