Published: 30 September 2025PIBEconomy
GST 2.0 Reforms Launched: Slabs Simplified to Two Main Rates of 5% and 18%
Following the 56th GST Council meeting held on September 3, 2025, the next-generation GST 2.0 reforms took effect from September 22, 2025. The reforms simplified tax slabs from four rates (5%, 12%, 18%, 28%) to primarily two slabs of 5% and 18%, with a new 40% slab for sin goods replacing the earlier 28% rate.
Under the reforms, 99% of items in the 12% slab moved to 5%, and 90% of those in 28% reduced to 18%. Daily-use essentials including toothpaste, pressure cookers, bicycles, and small washing machines moved to 5%. SBI Research estimated a direct consumption boost of ₹70,000 crore, with total aggregate demand impact of ₹1.98 lakh crore through the multiplier effect.
Mains angle
Q: Evaluate how GST 2.0 rate-slab rationalisation impacts household consumption and aggregate demand in India.
Answer (50 words):
The 56th GST Council's GST 2.0, effective 1 October 2025, collapsed four slabs into two, 5% and 18%, with a 40% sin-goods rate. About 99% of 12% items moved to 5%; 90% of 28% items to 18%. SBI Research pegs consumption gains at ₹70,000 crore; demand impact ₹1.98 lakh crore.
6-axis classification
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Frequently asked questions
What are the key changes in GST 2.0?
**GST 2.0** simplifies India's GST to **two main rates — 5% and 18%**, eliminating the 12% slab. Tax cuts were extended to **375 items** under the **GST Bachat** initiative, reducing compliance complexity.
What was the GST Bachat scheme under GST 2.0?
The **GST Bachat (savings) scheme** under GST 2.0 provided tax relief on **375 items** as part of the rationalisation effort launched by FM Nirmala Sitharaman in **October 2025**.
Why was GST 2.0 needed?
The original GST's four-slab structure (5%, 12%, 18%, 28%) created **classification disputes**, compliance complexity, and litigation. GST 2.0 streamlines this to **two main rates**, making tax filing simpler.
When was GST launched in India and how does GST 2.0 improve it?
India launched GST on **July 1, 2017**. GST 2.0, launched in **October 2025**, improves it by consolidating four slabs into **two main rates (5% and 18%)**, reducing disputes and compliance burden.
How does GST 2.0 benefit consumers?
Consumers benefit from **lower taxes on 375 goods** under GST 2.0's slab rationalisation. The simplified two-rate structure also reduces indirect costs passed on by businesses navigating complex classification rules.
