GST 2.0: Transforming India's Tax Framework and Economic Growth
The 56th GST Council Meeting has introduced significant changes to India’s indirect tax structure, known as GST 2.0. These reforms include rate adjustments for essential items, consumer durables, and specific sectors like vehicles, real estate, and energy, aiming to boost economic growth and affordability.
Gst 20Tax ReformEconomic GrowthReal EstateEnergyReal EstateSep 08, 2025
Health and life insurance will be GST-exempt. Items such as food, medicines, and personal care that fall under essential items have been shifted to a lower tax slab. There has also been a rate reduction in consumer durables like cement, electronics, and small vehicles, from 28% to 18%. These changes in slabs will majorly affect middle-income families and lower compliance challenges for MSMEs.
Specific Sector Impact
Vehicle
In order to make personal transportation more accessible, there will be a drastic decline in mass-market vehicle prices. While luxury cars that were taxed at 28% will now be in the 40% GST slab, the compensation cess of 22% has been discontinued, bringing down the tax rate.
EVs
The low 5% GST rate for electric vehicles (EVs) remains the same to promote environmentally friendly choices. However, there isn’t clarity on the accumulated compensation cess and how it will be utilized.
Energy
The GST rates on coal, lignite, and peat have been hiked from 5% to 18%. This drastic increase is aimed at meeting the offset revenue losses. But this change in slab will raise input costs for coal-based power generation and result in higher electricity tariffs. There will be an increase in operational costs of coal-based power, such as steel and cement. Besides this, biodiesel rates have been increased from 12% to 18%, with no relief to petroleum products to curb fossil fuel dependence.
Real Estate
Housing and real estate will be affected in a significant manner. There has been a cut in the rate of cement from 28% to 18%, which will reduce construction costs for both residential and commercial projects. Materials like granite and marble will have a reduced 5% rate. There will be further reductions in renewable energy equipment, which will reduce expenses and make housing more affordable.
Frequently Asked Questions
What is GST 2.0?
GST 2.0 refers to the recent reforms introduced by the 56th GST Council Meeting to India’s indirect tax framework. These reforms aim to enhance economic growth by adjusting tax rates and simplifying the tax structure.
How will GST 2.0 affect health and life insurance?
Health and life insurance will be GST-exempt under GST 2.0, which will benefit policyholders and reduce the overall cost of these essential services.
What changes have been made to the tax rates for vehicles?
Mass-market vehicle prices will see a significant decline, while luxury cars will now be taxed at 40% instead of 28%. The compensation cess of 22% has been discontinued, further reducing the tax rate.
How will the changes in GST rates impact the real estate sector?
The cut in the rate of cement from 28% to 18% will reduce construction costs for both residential and commercial projects. Additionally, materials like granite and marble will have a reduced 5% rate, making housing more affordable.
What is the impact of GST 2.0 on the energy sector?
The GST rates on coal, lignite, and peat have been increased from 5% to 18%, raising input costs for coal-based power generation and leading to higher electricity tariffs. Biodiesel rates have also been increased from 12% to 18% to curb fossil fuel dependence.
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