GST New Rules: Discussions are underway regarding numerous changes under ‘GST 2.0’. The primary objective is to simplify the tax system and provide relief to both the general public and business owners by reducing the number of tax rate categories. The proposed new structure involves revising tax rates for a wide range of goods and services.
However, merely lowering tax rates is not enough; businesses also need relief from issues related to Input Tax Credit (ITC), the complexities of the return-filing process, and the intricacies of tax regulations. In this article, we will explore the key changes proposed under GST 2.0 and their potential impact on the pockets of the common man and the business sector.
Simplified Tax Slabs in GST 2.0
Previously, the GST regime comprised four tax rates: 5%, 12%, 18%, and 28%. Different rates are applied to different products, making it difficult for traders to determine the exact tax liability for specific items. The new structure proposes consolidating these into just two main rates:
A 5% tax rate is designated for daily essentials and products used by the general public.
An 18% tax rate is set for standard products and services.
A 40% tax rate is proposed for luxury items and goods considered harmful.
Previously, large and expensive cars attracted a ‘cess’ in addition to GST, significantly increasing the total tax burden. Under the new system, applying a flat 40% rate to this category could greatly simplify tax calculations.
Relief in Health Services and Insurance
Changes to the GST framework have the potential to significantly reduce healthcare-related expenses for families. These adjustments could provide relief from the cost burdens associated with taxes on health insurance, life insurance, and essential medicines. In fact, the government has exempted health and life insurance from GST.
Additionally, tax rates on certain essential medicines have been reduced from 12% to either 5% or zero. This provides tax relief on items such as medical oxygen, bandages, glucometers, and surgical gloves. Rates for specific job-work services related to pharmaceutical manufacturing have also been lowered, which will help reduce the overall cost of medicines.
Benefits for Farmers and Rural Communities
GST revisions are set to lower farming costs and boost farmers’ income. Tax rates on agricultural equipment—such as harvesters, threshers, and drip irrigation systems—have been reduced from 12% to 5%. There are also proposals to lower tax rates on organic manure and tendu leaves, particularly in states like Madhya Pradesh, Chhattisgarh, and Odisha. These measures will increase farmers’ earnings and provide vital support for their livelihoods.
Relief for the Textile Industry and Small Artisans
The textile industry has long faced a disparity between tax rates on raw materials and finished products. Traders often had to pay higher taxes on raw materials compared to the lower rates applied to finished goods, causing their capital to get tied up in input taxes. Under GST 2.0, tax rates on man-made fibres and yarn have been cut; the rate for man-made fibres has dropped from 18% to 5%, and for yarn, from 12% to 5%. Furthermore, the tax rate on carpets, handloom products, and sewing machines has been set at 5%, offering significant benefits to small traders.
Boost to Green Energy
Tax rates have been reduced to promote solar energy and other renewable energy sources. Under the revised GST norms, the tax rate on green energy equipment has been reduced from 12% to 5%. It is estimated that this will lower the cost of setting up large-scale solar projects; savings of ₹20–25 lakh per megawatt are anticipated. Consequently, a 500-megawatt project could see savings exceeding ₹100 crore.
Cheaper Hotel, Gym, and Salon Services
The impact of the GST changes extends beyond just one sector; tax relief has also been provided for hotels and personal services. Reportedly, the tax rate on hotel rooms with a daily tariff of ₹7,500 or less has been cut from 12% to 5%. Additionally, the tax rate for services such as gyms, yoga centres, and beauty parlours is being reduced from 18% to 5%.
Relief for New Entrepreneurs
Entrepreneurs starting new businesses often face delays in the GST registration process; however, the new system simplifies registration and reduces associated risks. Applicants can now obtain automated GST registration in just three days. This facility will enable businesses to launch more quickly and eliminate the need for repeated visits to government offices and the time-consuming procedural delays involved.
Resolution of Tax Disputes via GSTAT
Tax-related disputes often entail a significant drain on both time and money for business owners. To address these issues, the Goods and Services Tax Appellate Tribunal (GSTAT) has been established to resolve GST-related appeals. Its primary objective is the speedy resolution of GST disputes. The framework includes provisions for 31 state benches across the country, with the Chennai bench scheduled to commence operations in January 2026. Effective functioning of this system will provide much-needed relief to businesses regarding their appeals.
Several Challenges in the GST System
It is worth noting that certain issues persist even after the changes made to the GST. For instance, petrol, diesel, and electricity have been kept outside the ambit of GST. Additionally, the issuance of fake bills and tax evasion remain issues. This impacts government revenue…