Mint Explainer: GST 2.0 Takes Effect On Monday. What Does It Mean For Businesses And Consumers?

(MENAFN- Live Mint)

The landmark introduction of the Goods and Services Tax (GST) in 2017 converted India's domestic market, fragmented by multiple regional taxes and border checkpoints, into a single entity.

Eight years down the line, the tax regime is undergoing a significant revamp, which takes effect on Monday, 22 September. It is expected to boost India's biggest growth driver – private final consumption expenditure or household spending. Official estimates suggest it could lead to ₹2 trillion of extra consumption demand.

Mint takes a close look at what GST 2.0 means for the Indian economy, how businesses should navigate the changes, and how consumers can ensure they benefit from the tax cuts.

What is GST 2.0?

GST offers transparency to consumers about how much tax they pay on any product or service, unlike the previous central excise-VAT system, which showed only the taxes paid at the final stage of the supply chain – retail.

While the introduction of GST led to an overall tax reduction, its openness revealed the actual tax incidence on consumption, which was only partly visible earlier. Consumers thus often complained about the indirect tax, while economists suggested further reductions in the tax rates.

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The union government has over the past several years taken measures to speed up India's economic growth, such as lowering the income tax rate on corporations, enabling greater access to credit for small businesses. and scaling up its own capital expenditure in the hope of sparking private investments.

This year, the focus has been on consumption. The financial year began with income tax relief for individuals in the budget. Now, a big consumption stimulus by way of reducing taxes on goods and services is being implemented. Policymakers hope this will accelerate economic growth by boosting demand for goods and services and encouraging businesses to step up investments and hirings.

What are the key elements of the reform?

The reform simplifies the tax system into two main slabs of 5% and 18%, with a few items such as tobacco and high-end cars in a new, outlier slab of 40%. At present there are four main slabs and an extra cess on items in the highest 28% slab. The 12% and 28% slabs have been removed, as has the cess (barring tobacco).

Individual life and health insurance policy premiums, which earlier attract 18% GST, will now be exempt from the tax.

A host of mass-use items such as hair oil, toilet soap bars, shampoos, toothbrushes, toothpaste, bicycles, tableware, kitchenware, and other household articles will move from either 18% or 12% to 5%. Similarly, packaged snacks, pasta, instant noodles, chocolates, coffee, preserved meat, butter and so on will move from 12% or 18% to 5%.

GST rates have also lowered for air-conditioners, TVs, dishwashing machines, cars, agricultural goods such as tractors, harvesting or threshing machinery, cement, pharmaceuticals, hotel stays, and wellness services.

GST registration and tax refunds to businesses are also being simplified. Corrections to tax anomalies in sectors such as leather, textiles and fertilisers are expected to make these sectors more attractive to new investments.

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What obligations do businesses have in the transition period?

Businesses are expected to reduce the price to the consumer commensurate with the tax cut immediately. Businesses can voluntarily place stickers of the revised prices on goods in their inventory that were produced before 22 September without blocking the original price. Businesses are required to issue price circulars to their dealers and retailers and ensure compliance.

Manufacturers and importers must take immediate steps to sensitise their retailers about the tax revision and its impact on prices through all possible communication channels.

Packaging material produced earlier can continue to be used until the end of March 2026, with appropriate changes to the retail sale price arising from the tax-rate change.

India's drug price regulator, the National Pharmaceutical Pricing Authority (NPPA), has asked all drugmakers and marketing companies to revise the maximum retail prices of drugs and medical devices that will see tax cuts from Monday. Revised price lists must be shared with retailers and the central and state drug authorities.

The Central Board of Indirect Taxes and Customs (CBIC) has clarified that in the case of post-sale discount given to dealers by way of credit notes, etc, the original transaction price is not affected, so both the tax liability on the transaction and the availability of input tax credit remain unchanged.

Technical aspects of the transition have been covered in the list of frequently asked questions issued by CBIC to help businesses and retailers.

How can consumers ensure they get the full benefit of the new tax rates?

It is important for consumers to know which products and services will have a lower GST rate from Monday. Enquiring at your local retail stores can help ensure that you receive the benefits of the rate cuts.

There is no specific forum for filing complaints about GST-related profiteering by businesses at the moment, but you can reach out to sector-specific regulators, ombudsmen, and other dispute-redressal commissions.

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