GST 2.0: Major Reform Agenda Cleared by PMO Ahead of Council Meet

Digital representation of 'GST 2.0' with green bar graphs and financial icons, symbolizing a major reform in the Goods and Services Tax framework.

The Prime Minister’s Office (PMO) has given an in-principle approval for a major revamp of the Goods and Services Tax (GST) framework. This marks the first significant overhaul since GST was implemented in July 2017, now completing eight years of its journey.

Summary of the Developments:

  1. Objective of the Overhaul:
    • The recast is aimed at simplifying the GST structure.
    • Likely includes slab rationalisation, reducing complexity in tax rates.
    • Also targets procedural simplification for ease of compliance.
  2. Next Steps:
    • The Finance Ministry is expected to hold consultations with states.
    • The goal is to build consensus before finalising the changes.
    • A proposal may be presented at the upcoming GST Council meeting in August.
    • Proposal includes removing 12% slab and easing compliance
    • A separate group of ministers is working on how to use the surplus in the compensation cess fund and what steps should be taken next.
  3. Significance:
    • This could lead to streamlining the four main GST slabs (5%, 12%, 18%, and 28%).Items under 12% slab plan be shifted to either 5%or 18% depending on the nature of the product
    • Long-standing demands from industry and experts for reducing rate multiplicity may be addressed.
    • Procedural reforms may improve taxpayer compliance and ease of doing business.
    • The GST revamp is also being seen as part of a wider push to prepare the economy for upcoming free trade agreements (FTAs) with developed countries. Policymakers believe that a smoother and less complicated tax system will help Indian businesses scale up and take better advantage of new trade opportunities
  4. Legal Framework:
    • Any major reform in GST will require approval from the GST Council as per Article 279A of the Constitution.
    • Changes in rates or procedure will also necessitate amendment of rules/notifications under the CGST Act, 2017, especially:
      • Section 9 – Levy and Collection of CGST
      • Section 11 – Power to grant exemptions
      • Section 22-25 – Registration procedures
      • Rules under CGST Rules, 2017 as applicable

Advisory:

Since the revamp is still under consultation, and exact amendments are not yet notified, businesses and tax professionals should:

  • Stay updated with official notifications and Council meeting outcomes.
  • Evaluate potential impact on pricing, contracts, and compliance systems once draft proposals are available.