Celebrations commence with GST reform announcements, marking economic shift

September 3, 2025, will be remembered as a historic day in India. The government has set a remarkable precedent by honouring its commitment to deliver a Diwali bonanza to the common man through the ann­ouncement of bold decisions by way of goods and services tax (GST) reforms.

 

After a full day deliberation attended by all members of the GST Council, significant GST reforms have been announced with an objective to move to a simplified two slab rate structure (5 per cent and 18 per cent), as was originally envisaged. The 80-page press release issued by the government is full of recommendations around rate rationalisation, measures for facilitation of trade, process reforms and other measures pertaining to law and procedure.

 

The intent behind these reforms is indisputable, to support the common man and bolster domestic industries. Introducing such significant changes at a time when the economy is grappling with socio-economic pressures is a testament to the government’s vision.

 

This courageous move signals the emergence of a stronger economy, clearly indicating that India is firmlyset on a path of progress and growth.

 

The government has devoted considerable effort and resources to ensuring that relief measures are effectively extended across all critical sectors. In particular, significant attention has been given to essential areas such as food, agriculture, fertiliser, renewable energy, textile, health, education, common man items, consumer electronics, transportation etc.

 

Nil GST rate has been proposed for all kinds of Indian breads (paratha, roti etc.), chena/paneer, stationery and several drugs and medicines. Significant rate reductions have been made for certain vehicle categories

(e g , small cars, three-wheelers, amb­ulances) from 28 per cent to

18 per cent.

 

The rate of tax on cement is also proposed to be reduced from 28 per cent to 18 per cent and tax rate on sand lime bricks or stone inlay work is to be reduced from 12 per cent to 5 per cent, which will provide substantial relief in construction costs to both consumers and corporations.

 

A new sin tax rate category of 40 per cent has been proposed to tax luxury and sin products such as panmasala, cigarettes, luxury motor vehicles, and certain categories of beverages. Most of these goods are currently taxable at an equivalent or higher tax rates with a GST rate of 28 per cent coupled with a compensation cess ranging between 12 per cent to 22 per cent.

 

The council members have not only concentrated on GST rate rationalisation but have also taken corrective measures on other critical areas of GST, which trade and industry have been representing for a long time.

 

With a vision to reduce future disputes, an amendment has been proposed in place of supply provisions to grant undeniable export status to all entities who do business with overseas organisations in the service sector.

 

Many a times such organisations were treated as intermediaries and denied the export benefits. This will put to rest the long-lasting litigation and interpretation issues around intermediaries.

 

Additionally, efforts have been made to resolve classification disputes by placing entire chapters of goods under one single rate category. Rate changes have been consciously made in sectors which are known for inverted duty structure (IDS) input tax credit accumulation such as textiles and renewable energy.

 

The government has also shown its inclination to make the Goods and Services Tax Appellate Tribunal (GSTAT) operational by the end of September itself, which will go a long way in bringing tax certainty.

 

To further enable trade, decisions have been taken to sanction risk-based provisional refunds, streamline and automate the registration process for small and mid-sized taxpayers and issue clarifications on issues pertaining to post-sale discount.

 

The industries are expected to put in a onetime effort to transit into these multitudinous changes by relooking at their price lists/maximum retail price (MRP), computing the impact of such changes, recalibrate ERP and IT systems, and revisiting the tax-inclusive contracts and trade schemes.

 

Overall, there is a clear indication of a significant shift in the Indian economy. Traditionally, India has been known for its complex and often litigative tax laws, which posed challenges for businesses operating within its jurisdiction. However, recent reforms and policy initiatives demonstrate a concerted effort by the government to transform India into a more reliable and business-friendly destination. These changes are aimed at simplifying tax regulations and reducing litigation, thereby promoting greater ease of doing business for both domestic and foreign players in the market.

 

The writer is Principal, Price Waterhouse & Co LLP. Views expressed are personal