From essentials to enterprises: How GST 2.0 redefines India’s consumer and business landscape

India’s tax reform journey reached a watershed moment with the rollout of GST 2.0, approved at the 56th GST Council meeting in September 2025. Nearly eight years after GST’s introduction, policymakers have now pressed reset on the structure, opting for a simplified three-rate framework: 5% for essentials, 18% as the standard slab, and 40% for luxury and sin goods. This bold overhaul simplifies taxation of goods and services to bring visible relief to both households and enterprises, reduce tax disputes, and cut compliance costs.

Lighter food bills and affordable healthcare

For consumers, GST 2.0’s most visible impact is at the supermarket and pharmacy counter. Staple foods—from fresh and packaged milk to paneer, dairy spreads, and basic Indian bread—are either exempt or capped at 5%. Daily-use FMCG items that once drew 18% GST, such as soaps, shampoos, hair oils, and toothpaste, now sit firmly in the 5% bracket. Families, especially the low-income households where these items form a large share of spending, should see a drop in grocery costs in the coming weeks.

In healthcare, the government has paired affordability with inclusivity. Medicines and medical devices have shifted to the 0–5% zone, directly reducing out-of-pocket medical costs. Perhaps the most significant step is the exemption of health and life insurance premiums from GST. An 18% tax burden has been erased overnight, making insurance more affordable and potentially widening coverage at a time when financial protection is a growing necessity.

Making learning tools affordable

GST 2.0 also takes a clear social stance on education. Items like notebooks, pencils, maps, boxes, and globes are now exempted or taxed minimally, aligning with the government’s focus on expanding access to quality education. With reduced costs for learning tools, both households and schools can increase productivity from their limited resources. Over time, this should improve enrollment and retention rates, particularly in under-resourced regions where affordability is often a barrier.

Rural prosperity through cheaper inputs

The reform is equally attentive to rural India. Tractors, fertilisers, and farm machinery are uniformly taxed at 5%, bringing down capital costs for farmers. Lower taxes on fertiliser inputs such as ammonia and sulphuric acid will feed into reduced crop cultivation expenses. This not only boosts agricultural productivity but also improves rural disposable incomes—an important driver of consumption in rural markets.

Simplicity and liquidity for businesses

While households see price cuts, businesses are poised to benefit from the structural simplification of GST. Reducing the rate matrix to three slabs curbs classification disputes—an area that previously consumed enormous time and resources in litigation. For MSMEs, this clarity translates into fewer compliance errors, less reliance on tax consultants, and reduced risk of penalties.

Liquidity support is another major win. GST 2.0 promises provisional refunds of up to 90% for exporters and firms facing an inverted duty structure to be sanctioned within days, rather than months. While important for many sectors, including IT/ITES, this reform is particularly crucial for the textile sector, which historically struggled with blocked working capital. Fast-tracked refunds free up cash for reinvestment in capacity, technology, and hiring.

Sector snapshots

Manufacturing & infrastructure: GST on cement has been cut from 28% to 18%, reducing project costs and supporting affordable housing and commercial development.

Automobiles: Small cars and two-wheelers now attract 18% GST (down from 28%), likely spurring festive sales. EVs continue at concessional rates, sustaining green mobility.

Electronics & durables: GST on TVs, washing machines, and dishwashers is now 18%, making them more accessible to middle-income households and boosting aspirational consumption.

Exports: Faster refunds and lower input taxes streamline operations, enhancing the global competitiveness of Indian goods.

Compliance simplification and dispute resolution

GST 2.0 also eases entry for smaller businesses, with simplified registration rules designed specifically for low-risk and small e-commerce sellers. By cutting documentation and procedural hurdles, the reform lowers barriers for entrepreneurs, including digital entrepreneurs, to join the tax net and operate seamlessly.

On the litigation front, the long-awaited GST Appellate Tribunal (GSTAT) would finally be operational. Businesses will now have a specialised appellate forum to resolve tax

disputes, replacing a patchwork of high-court interventions that increased costs and delayed justice.

Managing the transition

A reform of this scale comes with teething issues. The government has provided flexibility to industry by allowing old packaging and MRPs to continue till December 2025, provided new tax rates are reflected through stickers or stamping. This ensures manufacturers and retailers do not face write-offs on unsold inventory.

With the formal anti-profiteering framework now phased out, the government has shifted to a collaborative monitoring approach, tracking prices of over 50 essential goods. Industry is encouraged to work alongside policymakers to ensure that rate reductions are smoothly passed on to consumers, reinforcing trust and demonstrating responsible pricing practices

Inclusive growth as the bigger prize

The symbolism of GST 2.0 goes beyond mere rate tinkering. It marks a deliberate policy shift toward affordability, simplicity, and transparency. For households, it means cheaper food, healthcare, and education. For enterprises, it means predictable taxation and better liquidity. For the economy at large, it creates conditions for higher demand, faster job creation, and a stronger manufacturing base.

In essence, GST 2.0 transforms the tax system from being compliance-heavy and fragmented to being a growth platform. Whether in the kitchen, the classroom, the farm, or the factory, the reform’s benefits would be widely felt. India’s next growth chapter may well be written on the back of this bold simplification of its indirect tax regime.

(Views expressed are personal.)