Introduction
The Government of India’s major decision to revamp the Goods and Services Tax (GST) in 2025 marks the start of a new era. The new system aims to make tax brackets easier to understand and lower the compliance costs. This change, which is also known as GST 2.0 Reform or Next Generation GST Reform, is considered to be the biggest change to the indirect tax system since it was first introduced in 2017. Let’s look at where it came into existence, how it has changed over time, how it is set up, the main changes it has made, and the things that are still not covered by GST.
How The GST Came Into Existence
The Atal Bihari Vajpayee Government first suggested the notion of GST in 2000 and set up a committee to design a GST model.
In 2016, the Indian Parliament passed the 101st Constitutional Amendment Act to establish a constitutional framework for GST laws and create a GST Council.
India put GST into effect across the country on July 1, 2017. It subsumed 17 different taxes and 13 cesses into one unified tax to simplify compliance and improve transparency.
It was called “One Nation, One Tax,” and it made the tax system the same in all states.
Structure And Composition of GST
GST is a value-added tax that is collected at every step of the supply chain and is based on the destination. Input Tax Credit (ITC) makes sure that there is no duplicate taxation.
There are three parts to it:
1. CGST, or Central Goods and Services Tax, is a tax that the Center collects.
2. SGST, or State Goods and Services Tax, is a tax that the states charge.
3. IGST, or Integrated GST, is a tax that the Center charges on goods and services that cross state lines.
The GST Council, comprising the Union Finance Minister as chairperson and the State Finance Ministers as its members, decides on rates, exemptions, and rules.
Important Dates In The GST Timeline
2002: The Vajpayee Government set up the Kelkar Task Force to recommend tax reforms
2006: The Congress Government set 2010 as the GST implementation date (but it was delayed).
2011: The Constitutional Amendment Bill was brought forward in Parliament.
2016: The 122nd Constitution Amendment Bill was passed to become The Constitution (101st Amendment) Act, 2016.
2017: GST started with four levels: 5%, 12%, 18%, and 28%.
2018–19: Rates cut on consumer items, and sanitary pads were exempted from GST.
2019: Easier returns and GST for real estate.
2020: COVID relief: waivers and extensions for compliance.
2022: Rate rationalization starts, and exemptions go down.
2025: GST 2.0 Reform came out. It has two slabs (5% and 18%) and a special 40% slab.
What Has Changed in 2025 After GST 2.0 Reform
Category-wise comparison chart between the old and new GST regimes will help you to easily understand the benefits to the public and the Indian economy after the GST 2.0 Reform.
| Category | Previous GST Slabs | New GST 2.0 Slabs (2025) |
| Essential Goods | 5% / 12% | 5% (soap, packaged namkeens etc. from 12% to 5%); 0% (UHT Milk, Indian Bread) |
| Medicines & Healthcare | 12% / 18% | 5% (life-saving drugs, medicines); 0% (health insurance exempted) |
| Agricultural Inputs | 12% | 5% (farm machinery, irrigation equipment, lab reagents moved from 12%) |
| Consumer Durables | 28% | 18% (TVs, ACs, refrigerators, cement moved from 28%) |
| Luxury Goods | 28% | 40% (tobacco, pan masala, luxury cars, aerated drinks) |
| Automobiles (Cars, Bikes, SUVs) | 28% + Cess (up to 22%) | 18% for small/mid cars & bikes; 40% for luxury/SUVs with cess merged |
| Insurance & Financial Services | 18% | 0% (health & life insurance exempted) |
| Green/Eco-Friendly (EVs) | 12% / 18% | 5% (EVs retained at lower slab to promote adoption) |
| Hotels & Hospitality | 12% / 18% / 28% (based on room tariff) | 5% for budget & mid-range stays; 18% for premium hotels |
| Restaurants & Food Services | 5% / 12% / 18% | 5% standard (no ITC allowed) |
| Gyms, Spas & Salons | 18% | 5% |
| Yoga & Wellness Services | 18% (if not charitable) | 5% (for registered wellness centers); 0% (if charitable trust/NGO) |
| Telecom & Communication | 18% | 18% (retained in standard slab) |
| Air Travel | 5% (economy), 12% (business) | 5% (economy unchanged); 12% (business unchanged) |
| Oil & Petroleum Products | Outside GST (excise + VAT applied) | Still outside GST (petrol, diesel, ATF, natural gas, crude oil) |
| Electricity | Outside GST | Still outside GST (state subject) |
| Real Estate (Stamp Duty & Land Sales) | Outside GST | Still outside GST (construction taxed, but land/building sales & stamp duty exempt) |
Likely Benefits of GST 2.0 Reform
The Next-Generation GST revisions decrease taxes to start a cycle of growth. They help MSMEs by lowering costs and boosting household savings and other important inputs. A simpler two-rate system makes it easier to follow the rules, cuts down disputes, and brings in more tax money. Fixing duty imbalances helps the domestic industry and exports, and not having to pay for health insurance and basic medicines supports social security. These changes work together to boost the economy: lower costs lead to more demand, a bigger tax base, stronger revenues, and long-term growth that lasts.
GST 2.0 Reform Implementation Date
The goal of the reform is to increase spending, lower inflation, and encourage GDP growth. It will commence on September 22, 2025, just before the festival season.
Goods And Services That Are Still Outside GST Purview
Even though it covers a lot of ground, several things are still outside the GST purview so that states can keep their money:
1. Oil products such as crude oil, gasoline, diesel, natural gas, and ATF
2. Alcohol for human consumption
3. Power
4. Buying and selling land and buildings (construction services are taxed, but not the sale of land or buildings).
5. Fees for registration and stamp duty
Effects On the Indian Economy
- Expected loss of income: ₹48,000 crore; however, this would be made up for by increasing consumption.
- Inflation might go down by 1.1%, and GDP growth could go up by 0.6%.
- Businesses welcome reform when compliance is made easier and rates are made lucrative.
- States run by the opposition are worried about losing money and want a way to make up the losses.
Conclusion
GST has changed the way India taxes since it started in 2000, had its historic introduction in 2017, and is now going through a significant restructure in 2025. GST 2.0 Reform not only makes rates easier to understand, but it also makes it easier for people to follow the rules, lessens the burden on consumers, and brings India closer to its goal of having a single tax system by 2047.
For consumers, this means cheaper basic goods and appliances; for businesses, fewer compliance problems; and for India’s economy, it’s a step toward more efficiency, growth, and ease of doing business.
Frequently Asked Questions
Q1. What is GST, and when did it start in India?
Ans. Introduced on 1st July 2017, GST (Goods and Services Tax) is an indirect tax that subsumes several old central and state taxes, such as Excise Duty, Value Added Tax, and Service Tax.
Q.2 Why was GST 2.0 Reform put into place?
Ans. The GST 2.0 Reform was put in place to make the national tax system more consistent, get rid of the cascading effect of many indirect taxes, and make it easier for businesses and consumers to follow the rules.
Q.3 What is GST 2.0 Reform, and how does it vary from the old system?
Ans. The GST 2.0 Reform, also known as the NextGen GST Reforms, started in September 2025. It changed the old four-slab structure of 5%, 12%, 18%, and 28% into two regular slabs (5% and 18%) with a special 40% luxury/sin slab. It also added digital compliance tools and automatic refunds.
Q.4 What things are still not covered by GST?
Ans. The following are still not subject to GST:
- Oil products like gasoline, diesel, crude oil, natural gas, and ATF
- Alcohol for human consumption
- Electricity
- Buying and selling land and buildings
- Fees for registering and paying stamp duty.
Q.5 What are the benefits of GST for customers?
Ans. People who buy things benefit from decreased costs on essential goods, the end of cascading taxes, and easier billing. With the GST 2.0 reform, several items moved to lower tax brackets, which made them cheaper.
Q.6 What good things does GST do for businesses?
Ans. Businesses benefit from a unified tax system that makes interstate trade easier, as well as smooth Input Tax Credit (ITC), less paperwork, and speedier refunds.
Q.7 What effect does reforming the GST have on India’s economy?
Ans. GST 2.0 Reform is predicted to lower inflation by up to 1.1 percentage points, raise GDP growth by 0.6 percentage points, and get people to spend more, especially during festive seasons.
Q.8 Who is in charge of changing and setting GST rates?
Ans. The GST Council, comprising the Union Finance Minister as its chairperson and the State Finance Ministers as members, decides GST rates, exemptions, and changes.
Q.9 What does India want GST to look like in the long run?
Ans. India wants to migrate to a single tax slab structure by 2047. This will make GST one of the best and easiest indirect tax systems.