In September 2025, India's GST Council approved a landmark simplification of the Goods and Services Tax structure, replacing the complex four-rate system with two main rates of 5% and 18%, along with a 40% special rate for sin and luxury goods. The 12% slab was merged into the 5% category for essential goods and the 28% slab reduced to 18% for most items. This GST 2.0 reform, combined with the RBI's policy rate reduction from 6.5% to 5.5% through 2025, is projected to boost consumption, reduce inflation, and stimulate India's GDP growth, which stood at 7.8% YoY in Q1 FY2025-26.
GST 2.0: India Launches Major Tax Simplification — Two-Rate Structure
AQuick answer
In September 2025, India's GST Council approved a landmark simplification of the Goods and Services Tax structure, replacing the complex four-rate system with two main rates of 5% and 18%, along with a 40% special rate for sin and luxury goods. The 12% slab was merged into the 5% category for essential goods and the 28% slab reduced to 18% for most items. This GST 2.0 reform, combined with the RBI's policy rate reduction from 6.5% to 5.5% through 2025, is projected to boost consumption, reduce inflation, and stimulate India's GDP growth, which stood at 7.8% YoY in Q1 FY2025-26.
Key facts
- GST Council approved landmark simplification replacing four-rate system with two rates of 5% and 18%.
- The 12% slab was merged into 5% for essential goods.
- The 28% slab was reduced to 18% for most non-essential goods.
- RBI maintained the repo rate at 5.50% with a neutral policy stance alongside the reform.
- The reform improves compliance ease and reduces classification disputes.
- GST 2.0 is expected to reduce consumer prices and stimulate consumption.
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CoverageNationalSubjectEconomicExamBasic Computer Instructor · CET Graduation · CET Senior Secondary · EO/RO · LDC · Mahila Supervisor · Patwar · PTI · RAS · REET · RPSC SI · School Lecturer · Senior Computer Instructor · Senior Teacher · UPSC · Vanpal · BothSourceOECD Economic Outlook 2025 / Business Standard
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As mentioned in the article, what was India's Q1 FY2025-26 real GDP year-on-year growth rate alongside the GST 2.0 reform?
Explanation · Correct answer D
The article states that India's GDP growth stood at 7.8% YoY in Q1 FY2025-26 alongside the GST 2.0 reform and the RBI rate cut from 6.5% to 5.5%.
Source: OECD Economic Outlook 2025 / Business Standard
Frequently asked questions
What is GST 2.0 and what major structural change did it introduce to India's tax system?
GST 2.0 refers to the landmark simplification approved by the GST Council in September 2025, replacing the existing four-rate GST structure (5%, 12%, 18%, 28%) with two main rates of 5% and 18%, along with a 40% special rate for sin and luxury goods.
How were the 12% and 28% GST slabs rationalised under GST 2.0?
Under GST 2.0, the 12% slab was merged into the 5% category for essential goods, while the 28% slab was reduced to 18% for most non-essential items, simplifying the tax classification system.
What was the RBI repo rate alongside the GST 2.0 reform, and what was the policy stance?
The RBI maintained the repo rate at 5.50% with a neutral policy stance alongside the GST 2.0 reform. The RBI had reduced rates from 6.5% to 5.5% through 2025 to complement the fiscal stimulus.
What are the expected economic benefits of GST 2.0 for India?
GST 2.0 is expected to reduce consumer prices, stimulate consumption, improve compliance ease, reduce classification disputes, and boost India's GDP growth, which stood at 7.8% YoY in Q1 FY2025-26.
Which body approved the GST 2.0 simplification, and what was the key objective of the reform?
The GST Council approved the GST 2.0 simplification in September 2025. The key objective was to reduce complexity in the tax structure, lower the compliance burden for businesses, and make GST administration more efficient.
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