The reforms, pitched as part of the government’s “GST 2.0” initiative, aim to reduce complexity, lower disputes, and drive consumption by rationalising rates. At the same time, challenges around revenue neutrality, inverted duty structures, and exemptions are drawing attention.
Industry reactions
Abhishek Jain, Indirect Tax Head & Partner, KPMG, said the biggest gain would be for consumers, but noted that input tax mismatches remain a concern.
“The reduction in GST rates is a welcome move that should translate into direct benefits for consumers. At the same time, one of the industry’s larger concerns remains around working capital and potential long-term cost implications in cases of inverted duty structures, where procurements, specifically input services, are taxed higher than final supplies. With the government indicating a review of refund mechanisms under inverted duty structure, businesses are hopeful of constructive steps that will help ensure price reductions flow through to end products.”
Pratik Jain, Partner, Price Waterhouse & Co LLP, said the changes could simplify operations and reduce litigation.
“GoM’s recommendations, while in line with expectations, are significant. This will simplify the tax structure, reduce the disputes on the classification of products and also boost consumption. Since more than 70% GST collections come from the 18% slab (which is not proposed to be changed in general) the revenue impact of GST cuts may be limited, particularly because reduced prices will also spur the demand. Given the speed with which things are moving, industry needs to quickly gear up and assess the impact as the timeline for transition plan is really steep.”
Mahesh Jaising, Partner & Leader, Indirect Tax, Deloitte India, said the reform represents a pivotal moment but requires parallel clarity on structural issues.
“Moving ahead with Honourable Prime Minister’s announcement on next generation of reforms under GST, the GoM’s acceptance of the two-rate GST structure—5% and 18%, with a targeted 40% rate for sin items—marks a pivotal step toward a simpler growth-oriented tax regime. With the rate rationalisation, duty inversion also needs to be addressed. Industry awaits clarity and guidelines on areas of passing on the benefits. Insurance (life and health), which has been the talk of the town, is also expected to go the exemption route, which would be welcome. However, we need to watch out for the fact that an exemption results in credit blockages which could impact cost.”
Manoj Mishra, Partner & Tax Controversy Management Leader, Grant Thornton Bharat LLP, said the reform balances ambition and pragmatism.
“The GoM’s endorsement of the Centre’s proposal for a two-slab GST structure marks a significant step in the reform process. By backing the framework outlined by the Prime Minister, the committee has helped build consensus among states and shape the roadmap for GST 2.0. The proposed shift—moving most items from the 12% slab to 5% and from 28% to 18%—offers tangible relief for households and MSMEs, while aligning with the government’s broader goals of growth and financial inclusion. At the same time, revenue neutrality and inflation risks will need careful balancing. With the Council set to take a final decision, the GoM’s recommendations strike a balance between pragmatism and ambition in defining the next phase of GST reform.”
Balancing simplification with state revenues
The current GST regime has five principal slabs—0%, 5%, 12%, 18% and 28%, along with a compensation cess on luxury and sin goods. The proposed shift to a three-slab structure is aimed at reducing complexity and classification disputes that have often led to litigation and compliance burdens for businesses.
However, for states, concerns remain about revenue collections. Since more than 70% of GST revenues come from the 18% slab, keeping this rate intact is expected to cushion losses. But moving items from 12% to 5% and from 28% to 18% could reduce revenues unless higher demand offsets the shortfall.
With the GST compensation cess set to expire, states are pressing the Centre to quantify the potential loss and propose a mechanism for recovery.
The road ahead
The GST Council is expected to deliberate on the GoM’s recommendations in its upcoming meeting. While the broad direction of reform has found acceptance among policymakers and businesses, the fine print—transition timelines, treatment of inverted duty structures, and clarity on exemptions like insurance—will determine how smoothly India can move into the next phase of GST reform.
Experts agree that rationalisation is a step forward, but ensuring simplification for businesses, relief for consumers, and fiscal stability for states will be key to its success.
