Towards One Nation, One Tax: GST 2.0 as a milestone in India’s tax journey

The 56th meeting of the Goods and Services Tax (GST) Council marked a pivotal moment in India’s fiscal policy landscape. Convened in the context of the Prime Minister’s Independence Day address, the council put forth a series of recommendations anchored around three core pillars: structural reforms, rate rationalisation, and enhancing ease of living.

GST 2.0: A structural overhaul

This reform is indeed a transformative milestone as it signifies a fundamental reconfiguration of the GST framework in terms of its structure, intent, and accessibility. The introduction of a streamlined two-tier rate system comprising a 5% merit rate, an 18% standard rate, and a 40% demerit rate for luxury and sin goods brings India’s GST architecture closer in alignment with global best practices in indirect taxation.

Key proposals include revisions to GST rates across a broad spectrum of goods and services, ranging from food and essential commodities to consumer durables such as smart televisions and refrigerators, as well as healthcare products and automobiles. These adjustments are aimed at delivering tangible benefits to the aspirational middle class and easing the financial burden on everyday consumers.

In addition, the council introduced various measures to streamline the trade processes and improve compliance frameworks, thereby reinforcing the government’s commitment to facilitating ease of doing business across sectors.

The GST Council continues to take decisive and proactive steps to enhance the ease of doing business in India. Through a series of long-awaited and much-needed reforms, the council is working towards creating a tax ecosystem that supports the growth and operational efficiency of businesses, from large MNCs to MSMEs. With a strong focus on simplification, transparency, and digitisation, the latest set of GST reforms, widely referred to as “GST 2.0”, marks a significant milestone in India's tax transformation journey.

Boosting domestic resilience amid global uncertainty

The reform also arrives at a strategically appropriate moment, offering critical support to domestic businesses amid an increasingly challenging global geopolitical landscape. With international trade facing headwinds, particularly due to heightened tariffs and protectionist measures, the simplified GST structure enhances ease of doing business and strengthens the resilience of India’s domestic market. By reducing compliance burden and lowering tax rates on essential and consumer goods, the reform not only stimulates domestic demand but also positions Indian enterprises to better absorb external shocks and maintain growth momentum.

MSME-friendly reforms

Recognising the pivotal role that MSMEs play in contributing to employment, GDP growth, and innovation, the GST Council proposes to introduce a streamlined and automated registration process. The new system promises GST registration to be granted on an automated basis within three working days. This simplified process minimises delays, ensuring that genuine businesses can get started without unnecessary procedural hurdles.

Empowering businesses through simplification

One of the most anticipated reforms has been the clarification on the taxation of intermediary services, which has been a long-standing concern for exporters of services catering to foreign companies. Earlier ambiguity regarding the place of supply and export status of such services led to conflicting interpretations, prolonged litigation, and deterrents to global service delivery from India.

The latest decision by the GST Council clears the air onthese ambiguities by explicitly granting export status to intermediary services provided to overseas clients. This move is highly significant as it aligns with India’s ambition of becoming a Global Capability Centre (GCC) hub. By reducing compliance burden and offering tax clarity, the reform incentivises foreign businesses to outsource services to India, reinforcing the country’s image as a preferred destination for high-value service exports.

In yet another pro-business measure, the GST Council has relaxed the requirement of having pre-agreed written agreements for availing post-sale discounts. This requirement often posed practical challenges, particularly in dynamic business environments where promotional schemes and discounts are frequently devised on the go. With the removal of this pre-condition, businesses now enjoy greater operational flexibility. They can structure and implement discount schemes as per market conditions without worrying about non-compliance with documentation norms. This change enhances agility and customer responsiveness, which is crucial for sectors such as FMCG, retail, and consumer durables.

Dispute resolution through GSTAT

Another landmark reform that is set to provide significant relief to businesses is the long-pending establishment of the GSTAT. Dispute resolution has been a major area of concern for taxpayers under the GST regime, with a backlog of cases and the absence of an appellate body compounding delays and uncertainties. The operationalisation of GSTAT promises to expedite the resolution of disputes by offering a structured, time-bound, and dedicated platform for appeal. This reform is expected to significantly reduce litigation costs, provide clarity on contentious issues, and restore trust in the dispute resolution process.

Accelerated refunds for exporters

One of the most impactful reforms under GST 2.0 is the operationalisation of 90% provisional refunds for taxpayers. In the past, delayed refunds, particularly in the case of exports, led to working capital blockages that crimped business operations, especially for exporters and MSMEs. Under the revised mechanism, provisional refunds will now be processed based on a data-driven evaluation of the taxpayer's risk profile. The government aims to ensure the timely disbursement of refunds to trustworthy taxpayers while still maintaining safeguards against fraudulent claims. The promise of quicker refunds will go a long way in boosting business confidence, improving liquidity, and enhancing overall taxpayer satisfaction.

A reform for growth, not just revenue

Much discussion surrounds the GST Council's decision and its potential effects on employment and government revenue. However, this perspective may be shortsighted. The council intends to stimulate the economy and increase purchasing power. By making commodities and services more affordable and easing compliance, the reform is likely to expand the taxpayer base and boost GST revenue. Similar scepticism surrounded the original GST rollout, yet it has proven its merit in driving economic growth.

A timely step towards economic transformation

Amid global trade uncertainty, GST 2.0 introduces greater stability within the industry, enabling stakeholders to pursue growth aligned with India’s goal of becoming the world’s third-largest economy. With the festive season approaching, the timing of the reform is well-suited to support consumer demand. The GST Council has effectively delivered a forward-looking initiative that strengthens the vision of “One Nation, One Tax.”