Published: 3 September 2025PIB / IMF Country Report 2025Economy
GST Council Approves GST 2.0 Reform: Two-Slab Structure Replaces Four-Slab System
The GST Council on September 3, 2025 approved a landmark 'GST 2.0' reform package aimed at simplifying India's indirect tax structure, which came into force from September 22, 2025. The reform abolished the 12% and 28% tax slabs, replacing them with a simplified two-slab system of 5% and 18%, along with a new 40% rate for luxury and sin goods. Approximately 90% of items in the former 28% slab moved to 18%, while 99% of items in the 12% slab were shifted to 5%.
The IMF mission, which arrived in Delhi on September 4, 2025 to conduct the annual Article IV consultation, cited this structural reform as a key positive indicator for India's growth trajectory. The government estimated a net revenue impact of approximately ₹48,000 crore loss annually, but SBI Research projected a direct consumption boost of ₹70,000 crore with an overall aggregate demand stimulus of ₹1.98 lakh crore due to the multiplier effect, underscoring the reform's expected macroeconomic benefit.
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Linked questionMedium
What is the estimated net annual revenue impact of the GST 2.0 reform according to government estimates?
Explanation · Correct answer BSBI Research recorded that the government estimated the net fiscal impact of GST rate rationalisation at about ₹48,000 crore on an annualised basis. SBI's own estimate was lower after allowing for trend growth and consumption effects, but the government estimate asked in the question is ₹48,000 crore loss.
Frequently asked questions
When did the GST Council approve GST 2.0 and what is the new tax slab structure?
The GST Council approved GST 2.0 on September 3, 2025. The new structure comprises two slabs — 5% and 18% — replacing the earlier four-tier system that included 5%, 12%, 18%, and 28% rates.
Which GST slabs were abolished under the GST 2.0 reform?
The 12% and 28% tax slabs were abolished under the GST 2.0 reform. The simplification to a two-slab structure of 5% and 18% is intended to reduce compliance burden and streamline India's indirect tax system.
What is the IMF Article IV mission and when did it begin in relation to GST 2.0?
The IMF Article IV consultation is a periodic assessment of a member country's economic policies conducted by the International Monetary Fund. The IMF Article IV mission for India began in Delhi on September 4, 2025 — one day after the GST Council approved GST 2.0.
What economic impact is expected from the GST 2.0 reform?
The GST 2.0 reform is expected to improve India's tax-to-GDP ratio by broadening the tax base and simplifying compliance. The two-slab structure aims to reduce tax disputes, lower the compliance burden on businesses, and make India's indirect tax framework more investor-friendly.
