GST 2.0 should pave way towards single nationwide tax rate: Report

 

India’s Goods and Services Tax (GST) has been a transformative reform in the country’s indirect tax landscape since its inception in 2017. Building on this foundation, the GST Council has introduced GST 2.0, a marked evolution set to take effect from September 22, 2025. These changes simplify the tax structure,
streamline compliance, and encourage economic activity by rationalizing rates and digitizing processes further.

This guide unpacks everything about GST 2.0—from the all-important new two-slab tax rate structure to critical compliance updates, sector impacts, technology-driven changes, and what businesses and taxpayers should do next to prepare.

What is GST 2.0?

GST 2.0 is the next phase of India’s GST reform strategy, emphasizing:

• Simplification of the tax rate structure
• Enhanced use of technology and automation for compliance
• Transparent and robust tax administration with machine learning and data analytics
• Increased ease of doing business and reduced litigation

By redefining tax slabs and leveraging digital tools, GST 2.0 aims to make tax collection more efficient and taxpayer-friendly.

New GST Rate Structure: Two-Slab System

The headline announcement from the GST Council in early September 2025 is the reduction of multiple GST slabs into only two main rates:

• 5% GST (Lower Slab)
• 18% GST (Standard Slab)

Which Products Come Under Which Slab?

• 5% slab: Essentials and merit goods like edible oils, spices, food grains, packaged food, medicines, and a host of daily-use products.
• 18% slab: Most consumer goods, electronics, automobiles, services, and non-essential fast-moving items.
• Sin and luxury goods: A 40% ‘sin’ slab is proposed for tobacco products such as gutkha and pan masala to continue funding health programs. This is over and above existing compensation cess.

This major rationalization replaces the previous four main tax slabs (5%, 12%, 18%, 28%), making GST simpler and reducing the compliance burden on businesses.

Why the Two-Slab GST Rate?

The rationale behind this move includes:

• Ease of compliance: Fewer slabs mean simpler tax calculations and fewer classification disputes.
• Promotion of growth: Lower GST rates on essentials increase consumption among middle- and low-income consumers.
• Reduction of cascading tax: Simplified rates help reduce the tax-on-tax effect, fostering manufacturing and exports.
• Revenue stability: The sin tax slab and cess mechanisms ensure state revenues remain intact despite rate rationalization.

Compliance & Process Changes Under GST 2.0

GST 2.0 doesn't stop with just rate rationalization. It introduces technology-backed compliance measures accelerating digitization and transparency:

Mandatory Multi-Factor Authentication (MFA)

All taxpayers accessing the GST Common Portal must enable MFA, adding enhanced security against fraud.

Invoice Management System (IMS)

IMS automates invoice verification, enabling quicker validation and reconciliation, reducing errors and mismatches.

Locked Auto-Populated Returns

GSTR-1 figures will be auto-locked to prevent manual editing post-deadline, enforcing data integrity.

E-Way Bill 2.0 Launch

A new e-way bill system increases monitoring ease, employs two-step verification, and controls transport chain better to curb tax evasion.

Input Tax Credit (ITC) Restrictions

GST 2.0 tightens ITC claims by integrating real-time invoice matching and automatic reversals on mismatches, ensuring that only legitimate credits are availed.

Sector-Specific Impacts of GST 2.0

FMCG and Consumer Goods

Many fast-moving consumer goods (FMCG) move to the 5% slab, reducing their retail prices and encouraging consumer spending—a boost for manufacturers and retailers alike.

Automobile Industry

Autos and related parts now mostly attract 18% GST, with possible exemptions or concessions for electric vehicles to promote clean energy.

Hospitality

Simplified GST rules remove the declared tariff system, with hotels above ₹7,500/day GSTed at 18%, offering full input credit reliefs.

Tobacco & Sin Goods

Higher tax rates and continuing compensation cess uphold revenue from tobacco products while seeking to deter consumption.

Transition and Implementation Timeline

• September 22, 2025: GST 2.0 slabs and major compliance features become effective.
• August to November 2025: Transition period for inventory valuation and price adjustments.
• Businesses must update ERP systems, invoice templates, and audit operations accordingly.

Preparing for GST 2.0: Key Steps for Businesses

1. Update Tax Software: Upgrade your accounting and billing software to accommodate new tax slabs and returns format.
2. Train Staff: Conduct GST 2.0 training sessions for your tax and finance teams.
3. Inventory Review: Revalue stocks and input credits as per new rates.
4. Maintain Documentation: Document transitional adjustments carefully for audit trails.
5. Stakeholder Communication: Inform customers and suppliers about GST rate changes affecting invoices and contracts.
6. Consult GST Experts: Seek professional advice for complex reconciliations or sector-specific challenges.

Benefits of GST 2.0 for Taxpayers

• Simplified tax compliance with fewer slabs
• Improved transparency with automated invoice verification
• Faster return processing and reduced litigation
• Consumer benefits through price reduction on essentials
• Streamlined processes via mandatory MFA and e-invoicing enhancements

Challenges and Considerations

• Initial transition headaches for SMEs due to system changes
• Need for robust IT infrastructure and data management frameworks
• Managing cash flows during rate transitions
• Adjusting pricing and contract terms with the new GST rates

GST Council’s Vision Beyond 2025

Looking forward, GST 2.0 is just the beginning. The Council envisages:

• Full automation of tax processes using AI and machine learning
• Integration with direct tax and customs for a unified tax system
• Expansion of e-invoicing to all taxpayers
• Adoption of blockchain for tamper-proof tax records
• Continuous simplification and taxpayer service enhancements

Conclusion

GST 2.0 represents a significant leap toward a more efficient, transparent, and taxpayer-friendly indirect tax system in India. The move to a two-slab rate structure along with technology-driven compliance reforms will streamline the tax experience, encourage economic growth, and support the government’s revenue goals.

Businesses and taxpayers must proactively adapt to these changes by upgrading systems, revisiting processes, and engaging with professionals to ensure seamless compliance. With proper preparation, GST 2.0 is an opportunity to reduce costs, simplify operations, and contribute to a more robust Indian economy.

Stay informed and ready. The future of GST is here!