GST 2.0: Sweeping Changes In Rates, Structure, Compliance Norms Just Ahead Of Festive Season

A host of daily essential items, including food and life-saving medicines, will now attract zero tax. The new rates will be applicable from September 22. 

Individual life and health insurance policies have also been exempted from any tax.

'Sin' goods such as pan masala, aerated beverages with added sugar, and tobacco items, among others, will, however, attract a much higher GST of 40 per cent.

At a late-night presser, Finance Minister Nirmala Sitharaman said that the decision was taken based on the main drivers of the economy. 

The announcements have definitely provided some relief to businesses amid the imposition of a whopping 50 per cent tariff by the Donald Trump administration on Indian exports into the US. 

The reduction in prices is expected to improve the demand during the upcoming festive season.

Prime Minister Narendra Modi on August 15 had already announced a reduction and rationalisation of GST rates before the Diwali season kicks in this year. 

“The Council’s green light to systemic process reforms such as risk-based provisional refunds for inverted duty structures and alignment of valuation rules is significant. These measures will enhance ease of doing business, provide greater legal certainty, and reduce long-pending litigation. Together, they reflect a maturing GST regime moving beyond incremental tweaks towards a robust, transparent, and taxpayer-friendly framework,” said Manoj Mishra, Partner and Tax Controversy Management Leader, Grant Thornton Bharat LLP.

Textiles Sector

Textile sector, which is one of the most affected by the US tariff, has been somewhat relieved as the Council decided to rectify the GST inversion in the Man-Made Fibre (MMF) value chain by aligning MMF fibre and yarn at 5 per cent from 18 per cent and 12 per cent, respectively. 

“It addresses the long-standing blockage of working capital for thousands of spinners and weavers. With over 70-80 per cent of textile and apparel units in India being MSMEs, this reform will directly benefit a large segment of the industry by easing liquidity pressures, enhancing competitiveness,” said Rakesh Mehra, Chairman, Confederation of Indian Textile Industry (CITI).

Automobiles Sector

The automobile sector, which was one of the hardest hit in terms of the slowing of demand, will also be happy. “Especially in two-wheelers, the final price had crossed Rs 1 lakh mark, a psychological figure. Now this will give some comfort to the buyers. Auto-makers will definitely pass on the benefits to the customers as the market is extremely competitive,” said Pranav Shah, president of the Federation of Automobile Dealers Association (FADA).

Industry experts said that having September 22 as the date of implementation will give sufficient time for transition. “The GST Council’s approval of the proposed rate change is a welcome move that should boost consumption. The grant of export status to intermediary services would bring to rest litigations on what qualifies as intermediary and, accordingly, reduce refund denials on this account. Similarly, the changes to post-sale discounts would reduce a large dispute on their allowability. With the discontinuation of the compensation cess, the original design of GST stands reinstated, which is a significant step towards a simpler and more stable tax regime,” said Abhishek Jain, Indirect Tax Head and Partner at KPMG.

Renewables Sector

The recalibration of GST on renewable energy equipment from 12 per cent to 5 per cent will help the companies and attract further investments into the sector. While the reduction does deepen the inverted duty structure, the Council has clarified that refunds will be available and expedited through process reforms. This ensures that liquidity is not locked up, while the lower rate directly reduces project costs and improves affordability for developers.

"Equally significant is the resolution of the long-disputed deemed 70:30 valuation for EPC contracts, which had created compliance uncertainty and litigation for renewable projects. By providing clarity on both taxation and valuation, the Council has enhanced cost competitiveness, reduced capital intensity, and strengthened investor confidence. GST is positioned not merely as a revenue instrument but as an enabler of India’s clean energy transition,” Mishra added.

Real Estate Boost: Affordable Housing

The reduction of GST on items related to the real estate sector will have a positive impact on the Indian residential, retail, and office real estate sectors. GST has been reduced from 28 per cent to 18 per cent in cement, back-up power generators, and ACs, while GST on marble/granite, sand, lime, brick, stone inlay, interiors, renewable energy, pumping and composting machines, has been reduced from 12 per cent to 5 per cent. 

This will give a direct and indirect boost to the sector, particularly the affordable segment, by bringing down construction costs by as much as 3-5 per cent, said property consultant major the ANAROCK Group in a statement. 

“The affordable housing category (below Rs 40 lakh) has seen its share of total sales decline from 38 per cent in 2019 to just 18 per cent in 2024. The share of new supply dropped even more dramatically, from 40 per cent in 2019 to just 12 per cent in H1 of 2025. The reduced construction costs, if passed on to homebuyers, can boost demand in these segments,” said Anuj Puri, Chairman, ANAROCK Group. 

On reducing GST slabs, he opined that this will bring clarity on tax implications for home buyers, which can potentially bring significant numbers of first-time buyers and fence-sitters to the market, which would have a notable impact in Tier-II and Tier-III cities.

“Cement is the key ingredient. Lower taxes and other factors will have a major impact by reducing the procurement costs, ultimately affecting the price of the house or office,” said Vijay Shah, chairman of Vijay Buildcon.

He said that this will drive sales in the affordable segment in combination with a fall in interest rates on home loans. “Interest rates have already come down by about 2 per cent and are around 7-7.5 per cent. The Federal Reserve is also expected to reduce interest rates, following which RBI should reduce rates further. Together, these factors will give a major boost to the real estate sector, particularly those in the affordable segment,” said Shah.  

Real Estate Boost: Commercial

Commercial real estate currently attracts 12 per cent GST, with Input Tax Credit (ITC) available. However, recent developments have complicated the landscape a bit. “The elimination of ITC on commercial property leases means developers can no longer claim ITC on project-related costs. This retrospective amendment may increase operational costs and rental prices for office spaces and other commercial properties,” said ANAROCK in a statement.

Further, the reverse-charge mechanism (RCM) for commercial property rentals by unregistered suppliers, which requires tenants rather than landlords to pay 18 per cent GST on such rentals, adds a compliance burden for businesses renting commercial spaces.

The GST rationalisation will bring down logistics costs and help streamline supply chains, benefiting retail real estate operations. However, retail properties used for commercial purposes will continue to attract 18 per cent GST on rental income, said the statement.