India will launch GST 2.0 on September 22 with just two main slabs, simpler compliance and focus on middle class. Nirmala Sitharaman said the system is a move from unity to simplicity, with just two main tax slabs for essential goods and services.
India is gearing up to roll out GST 2.0 on September 22, a major reform that promises a simpler and cleaner tax system for both businesses and ordinary citizens. Union Finance Minister Nirmala Sitharaman has described the new system as a move from unity to simplicity, with just two main tax slabs and clear exemptions for essential goods and services. This explainer breaks down what GST 2.0 means, why it matters and how it will affect your daily life.
From unity to simplicity
When the Goods and Services Tax (GST) was first introduced in 2017, it replaced a confusing mix of central and state taxes with the idea of ‘one nation, one tax’. That was GST 1.0, focused on unifying India under a single framework. Now, GST 2.0 takes the next big step. Instead of multiple rates, 5%, 12%, 18% and 28%, there will now be just two standard slabs: 5% and 18%, along with a 40% slab for luxury and sin goods. This simplification is designed to make compliance easier for businesses, improve transparency and reduce confusion for consumers.
Finance Minister Sitharaman in an exclusive interview to India Today and Aaj Tak explained it this way, “Common man and middle class, their basic necessities and aspirations are the main focus for GST reforms. Ninety-nine percent of items are now either in the 5% category or below. Only one percent has gone to the 40% bracket.”
What changes for the common man
The government has promised that the middle class and common citizens will benefit the most. Here’s how:
Essentials at 5% slab: Everyday food items and kitchen staples like butter, ghee, cheese, namkeens, bhujia, mixtures and utensils will stay in the lower bracket.
Farm equipment at 5%: Tools that support farmers, including drip irrigation systems, sprinklers, pesticides, micronutrients, tractors and tractor tyres, will also remain in the lowest slab.
Healthcare relief: Medical equipment and diagnostic kits fall in the 5% category. Meanwhile, life insurance, health insurance premiums and many core healthcare services will remain GST-free.
Education clarity: Regular schooling stays tax-free, but commercial coaching centres and private coaching services will be taxed.
Luxury and sin goods at 40%: High-end motorcycles (above 350cc), yachts, helicopters, cigarettes, bidis, pan masala and sugary drinks will face the steepest tax.
This balance ensures that basic needs are affordable, while luxuries and unhealthy products pay more.
Businesses under scrutiny
A key message from the Finance Minister’s interview to India Today was clear that businesses must pass on the benefits of lower tax rates to consumers. “Our main focus will be on ensuring that rate cuts are passed on to the janta. We have a lot of work post-22nd September. It is a big vigilance exercise and we are confident the benefits will reach the common man,” Sitharaman told the channel.
The government will monitor both private companies and public sector enterprises to make sure reduced rates do not get absorbed as extra profit margins. Industry groups and insurers have already pledged support, but the government says it will directly intervene if companies fail to comply.
Opposition’s role and the ‘Gabbar Singh Tax’ jibe
The GST debate has long been political. When it was first rolled out in 2017, opposition parties, especially the Congress, mocked it as the ‘Gabbar Singh Tax’. Now, Sitharaman has taken a swipe at those critics:
“Those who once mocked the Goods and Services Tax as a ‘Gabbar Singh Tax’ are now trying to take credit for the government’s GST 2.0 reforms.”
The move to simplify slabs was decided at the 56th GST Council meeting, with consensus that fewer slabs would encourage compliance and make the system fairer.
Earlier, in a press conference, Union Finance Minister Sitharaman launched a sharp attack on the Congress Party, accusing it of hypocrisy over the Goods and Services Tax (GST). She said that Congress had once claimed GST was impossible to implement, but the Modi government not only rolled it out successfully in 2017, it is now taking it forward with ‘second-generation reforms’ to reduce the burden on ordinary people.
She also hit back at Congress’s demands for lower GST rates on products like tobacco and gutkha, questioning if the Opposition wanted them taxed at just five per cent. Sitharaman argued that the new reforms will help micro, small and medium enterprises (MSMEs) and labour-intensive industries by simplifying compliance. She challenged Congress to clarify whether it supports or opposes reforms that directly benefit the people, adding that the public would see through political doublespeak.
Big relief for households, farmers and MSMEs
Announcing the new GST structure, Nirmala Sitharaman highlighted sweeping rate cuts designed to benefit households, farmers and businesses. Daily-use products like hair oil, shampoo, toothpaste, shaving cream, soap bars and toothbrushes, previously taxed at 18 per cent, will now attract only 5 per cent GST, bringing direct savings for families. She also announced the complete removal of GST on individual health and life insurance policies, a move expected to boost insurance coverage and reduce out-of-pocket costs.
The agriculture sector, too, stands to gain: tractors, earlier taxed at 12 per cent, will now be under the 5 per cent slab, while tractor tyres and parts, previously at 18 per cent, also drop to 5 per cent. Sitharaman stressed that these reforms will not only bring relief to farmers but also reduce costs for labour-intensive units and MSMEs. She said the government’s focus is to ease compliance while ensuring that reduced rates benefit the common man.
GST 3.0 on the horizon?
While GST 2.0 simplifies the structure, Sitharaman has already hinted at a future GST 3.0. This next phase, she said, will focus on:
Stability: Keeping the tax system predictable and less prone to sudden changes.
Fairness: Ensuring small traders and middle-class citizens aren’t overburdened.
Smooth implementation: Ironing out compliance glitches and building trust.
GST 3.0 will aim to lock in the benefits of GST 2.0, without complicating things again. For citizens, the biggest takeaway is relief on everyday goods and clarity on what is taxed and what is not. For businesses, GST 2.0 reduces paperwork, removes grey areas and provides a cleaner tax framework.
By merging slabs and exempting essential services, the government hopes to boost consumption, increase incomes and encourage growth. At the same time, heavy taxes on luxury and harmful goods ensure that the principle of equity, those who can pay more, will, remains intact.
With GST 2.0 launching on September 22, India enters a new phase of tax reform, which is simpler, clearer and more people-friendly. The next step, GST 3.0, may still be a few years away, but if GST 2.0 delivers on its promises, India could finally see a tax system that feels fair, simple and effective.