Finance Minister Nirmala Sitharaman on Sunday said the next-generation GST reforms have simplified India's indirect tax system by resolving long-standing classification disputes and streamlining rates to make goods and services more affordable.
Speaking at 'Tax Reforms for Rising Bharat', a conclave organised by the Chennai Citizens' Forum, FM Sitharaman highlighted how businesses had struggled under the earlier system. "Business people didn't really understand the exact bracket under which an item fell," she said, noting that disputes often ended up in arbitration with different courts offering inconsistent rulings.
Classification Issues Resolved
Citing an example raised in a past GST Council meeting, the Finance Minister said the same food item, popcorn attracted different tax rates depending on how it was sold. While street vendors sold it tax-free, branded salted popcorn attracted 5% GST and caramel popcorn 18%. "These anomalies created confusion and criticism. Such issues are now resolved under GST 2.0," she stressed.
Under the new system, all food items are now taxed at either 5% or are exempt, eliminating confusion across categories. "Goods of the same type are now taxed at the same rate," FM Sitharaman said.
Key GST 2.0 Reforms
The 56th GST Council meeting on September 3 marked a turning point, scrapping the 12% and 28% slabs and abolishing the compensation cess. The new regime consolidates rates, bringing over 300 items-including dairy, medicines, insurance and consumer goods into the 5% or nil GST bracket.
- About 99% of goods previously taxed at 12% have been cut to 5%.
- All changes will come into effect from September 22, 2025.
- FMCG majors like HUL, Godrej and Dabur have assured the government that the benefits of rate cuts will be passed on to consumers.
"GST 2.0 is not only about rate cuts, but also about system-cleaning," Sitharaman said, adding that reforms in direct taxes-including raising the income tax exemption limit to Rs 12 lakh-reflect the government's push to simplify compliance.
Faster Refunds & Simplified Registration
Addressing industry concerns, Sitharaman announced that businesses will now receive 90% provisional refunds automatically, while new GST registrations have been simplified and reduced to just three days.
She outlined five guiding principles of GST 2.0:
- Rate cuts on daily-use essentials.
- Relief for poor and middle-class consumers.
- Support for farmers.
- Lower input costs for MSMEs.
- Growth in critical sectors of the economy.
"GST 2.0 is a historic tax reform that clears systemic hurdles, reduces litigation and ensures affordability for common people while empowering businesses with faster compliance and refunds," the Finance Minister concluded.
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