GST 2.0: Is it a gain or loss for the people?

KAKALI DAS

Why GST rates have been changed again? Will the states lose revenue because of this reform? And most importantly, what do consumers need to know? These questions have come up strongly in the minds of people after the government announced the beginning of what is now being called GST 2.0.

The new reform has been presented by the Finance Minister as a major simplification of the tax system. But behind the announcement lies the bigger concern – will the states gain or lose revenue from this new structure? The debate is crucial because state revenues directly impact development, welfare schemes, and public services.

GST 2.0: Is it a gain or loss for the people? — Finance Minister

To understand this, one needs to carefully look at what has changed, why the change was brought, and what the larger effects on the economy and citizens are expected to be.

The journey of GST 2.0 began with a mention by the Prime Minister in his Independence Day speech, and it has now been finalized by the GST Council with unanimous approval. The new tax structure will take effect from 22nd September.

The choice of the date is not accidental. The government has chosen it deliberately to coincide with the start of the Navratri festival, which marks the beginning of India’s long festive season. The festive months are usually a time of high demand and consumption, and implementing the reform at this point will make its impact visible in real time.

Earlier, GST had four major tax slabs – 5%, 12%, 18%, and 28%. Under the new reform, this has been simplified into only two major slabs, 5% and 18%. At the same time, a special slab of 40% has been kept for goods that are either harmful to society, like tobacco, pan masala and cigarettes, or ultra-luxury items that are consumed by the very wealthy. This way, the system aims to make a clearer distinction between what is essential for everyday life and what can be taxed heavily without hurting the common citizen.

The government has highlighted several expected outcomes of this change. The most important one is simplification. With only two slabs, compliance will become easier for businesses, retailers, and consumers. Invoicing and tax filing will be simpler, and confusion about which category an item falls into will reduce.

The second major benefit is that consumers will feel relief in their daily spending. Many items of everyday use that were earlier in the 12% or 18% slabs have now been shifted to the 5% slab. This includes hair shampoos, packaged snacks like namkeens and bhujiyas, butter, ghee, and even basic machinery parts. For households, this means a direct reduction in the amount of tax they pay on a range of products they use daily.

The agriculture sector, which forms the backbone of the country, has also received special attention. Items such as tractor tyres, pesticides, micronutrients, drip irrigation equipment, and other farming machinery have been shifted from 18% or 12% to the 5% slab. This is expected to reduce input costs for farmers and encourage investment in better agricultural practices.

At the same time, healthcare and insurance have received major relief. Individual health and life insurance, which earlier attracted 18% GST, have now been exempted completely, bringing the rate to 0%. Healthcare-related commodities too have been shifted to the lower slab.

Similarly, goods linked to education have been brought to the 0% slab, which is a huge boost for families and students. Automobiles, meanwhile, have been divided carefully. Luxury cars are now taxed at 40%, while cars meant for the middle class continue in the 18% category. Electronic appliances, another big consumer segment, also remain at 18%, ensuring a balance between affordability and government revenue.

Overall, the message is clear. The new GST system is designed to put less pressure on consumer pockets, increase affordability, and encourage higher consumption. As people spend more, demand is expected to rise, and this in turn will boost production and overall economic growth. This cycle of spending, demand, and production is at the heart of why the government believes GST 2.0 will be a game changer.

But the most pressing question remains – what about state revenues? Will states lose money because the rates have come down on so many items? Opposition parties and several state governments have raised concerns about this very point, and they have even asked for compensation from the Centre, just as they did when GST was first introduced. The fear is understandable. If state revenues drop, public expenditure on health, education, infrastructure, and welfare schemes will suffer. That could slow down development, and the burden will eventually fall on ordinary people.

However, a recent research report from the State Bank of India has provided some reassurance. The report clearly states that states are actually expected to be net gainers under GST 2.0. The logic is based on how the new system will encourage consumption and reduce tax evasion. Because more goods are being shifted to lower slabs, people will spend more. Higher consumption will naturally lead to higher GST collections.

The report estimates that states could earn as much as ₹10 lakh crore in SGST revenue. Additionally, another ₹4.1 lakh crore will come to states through devolution as per the recommendations of the 14th Finance Commission. Put together, states could see around ₹14.1 lakh crore in extra revenue, which is no small amount.

Another important point in the SBI report is that for every ₹100 collected as GST, nearly 70% eventually goes to the states, through both SGST and devolution. With simplified tax rates, compliance is expected to improve, and tax evasion will become harder. This will further increase the actual amount collected. In addition, with fewer slabs and clearer rules, administrative efficiency will rise. States will spend less effort on disputes, audits, and enforcement, and more effort on governance and development.

Of course, there may be some short-term pain. In the initial months, states may feel a small dip in revenue because of the shift in rates. But over the long run, experts believe the system will stabilize and revenues will be more predictable. States will be less dependent on transfers from the Centre and will enjoy a more stable and sustainable revenue base. This balance is also expected to reduce interstate trade distortions, which was one of the founding ideas of GST, creating a unified market under the slogan “One Nation, One Tax.”

From the consumer’s point of view, the reform is a major relief. Daily essentials will cost less, insurance and education will be cheaper, and farmers will find their input costs falling. The average household will feel more comfortable spending, especially in the festive season when the reform takes effect. For industries like FMCG and retail, this is very good news because higher consumption means higher sales.

For the healthcare and insurance sectors, the removal or reduction of GST could significantly increase coverage and affordability, which has long been a demand from citizens. On the other hand, luxury consumption will remain costly, with the 40% slab acting as both a revenue source and a deterrent.

The bigger picture shows a government attempting to strike a balance. On one side, it is easing the burden on the common man and encouraging demand. On the other, it is ensuring that harmful or luxury goods continue to provide revenue without hurting the wider population. The reform also takes a step toward simplifying one of the most complex indirect tax systems in the world, something businesses and traders have been asking for since GST was first rolled out.

In the end, GST 2.0 is not just about tax rates. It is about shaping consumer behaviour, supporting key sectors like agriculture and healthcare, improving compliance, and making sure that states remain financially strong. The political debates will continue, but if the numbers projected by experts hold true, states will be net gainers and not losers. Consumers will feel direct relief in their pockets, and businesses will find compliance easier. The festive season will provide the first big test of the reform, as people shop, travel, and celebrate under the new system.

What stands out most is that GST 2.0 is not being presented as a small adjustment but as a monumental change. By cutting down the slabs, providing relief on essentials, and taxing sin goods heavily, the government has attempted to redraw the indirect tax landscape in a way that connects both economics and social policy.

If implemented effectively, it could bring a new phase of stability, transparency, and growth to India’s economy, and states, far from losing out, could find themselves with more resources to fund the development and welfare schemes that citizens need.

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