GST 2.0 Update: Simplifying Taxes & Business Compliance

India’s GST regime is poised for a landmark transformation. On August 15, 2025, Prime Minister Narendra Modi announced a major Diwali gift for taxpayers: a simplified GST framework i.e. GST 2.0 to enhance ease of doing business and create a more consumer-friendly tax environment.

Following this, Union Finance Minister Nirmala Sitharaman convened the Group of Ministers (GoM) on 20th and 21st August 2025 to deliberate on the proposals, including rate rationalization and exemptions. The GoM has since endorsed the removal of the 12% and 28% GST slabs, with some more recommendations now awaiting final approval from the GST Council.

The 56th GST Council meeting is scheduled to take place in the first week of September 2025, in New Delhi. This meeting will deliberate on the proposed reforms, including the two-slab structure and other key changes.

For businesses, adapting to these reforms requires robust GST compliance and reporting solutions. IRISGST provides end-to-end automation, helping organizations reconcile invoices, manage input tax credit (ITC) and align with updated GST slabs seamlessly. To navigate these changes effectively, businesses must evaluate how each proposed reform from slab rationalization to exemptions and luxury tax rates, it could impact pricing, input tax credit (ITC) management, compliance processes and overall tax liability.

1. Fewer GST Slabs – Simplifying Compliance | GST 2.0

Businesses currently operate with multiple GST slabs: 5%, 12%, 18%, and 28%. The proposed structure reduces this to primarily two slabs: 5% and 18%, with a special 40% slab for luxury and sin goods.

Impact on Businesses:

Simplified accounting and invoicing, reducing errors and reconciliation efforts.
Lower compliance costs, especially for SMEs.
Faster adaptation to tax reforms and less dependency on external consultants.

Impact on Consumers:

Transparent pricing and simpler understanding of tax components.
Potential savings if essential goods are moved to a lower slab.

Business Preparedness Challenge:

While reforms promise ease, businesses are racing against time. Rate changes are expected before October 2025, but without clear timelines, companies face hurdles in updating MRPs, packaging, and passing on benefits. Early re-strategizing of pricing and supply chains is critical to avoid last-minute disruption.

2. GST Exemption for Health and Life Insurance | GST 2.0

The GoM has proposed exempting health and life insurance premiums from GST to make policies more affordable, aligning with PM Modi’s GST 2.0 reforms.

Consumer:

Eliminating 18% GST could lower premiums. For example, a ₹10,000 monthly premium may save ₹1,800. The exemption would make insurance more accessible for middle-class families, senior citizens, and those seeking health coverage.

Industry:

Insurers have raised concerns that a full exemption may disrupt Input Tax Credit (ITC) and increase operational costs. Some may adjust premiums to offset lost credits, which could dilute the benefit to consumers.

3. Special 40% Slab for Luxury and Sin Goods | GST 2.0

The higher 40% slab targets luxury items, tobacco and other sin goods.

Business Perspective:

Companies in luxury and sin goods segments may need to adjust pricing strategies.
Potential dampening of demand in discretionary categories.

Consumer Perspective:

Luxury buyers face higher costs.
Acts as an incentive for rational consumption and public health objectives.

4. State Revenue and Policy Considerations | GST 2.0

Some states have expressed concerns about revenue losses and compensation mechanisms. Businesses may face short-term uncertainty as policy details are finalized.

Business Takeaway:

Monitor GST Council decisions closely to adjust pricing, supply chain contracts, and financial planning.
IRIS GST Software Role: Helps track regulatory changes across states, ensuring accurate reporting and early warning of potential compliance risks.

Consumer Takeaway:

Temporary fluctuations in prices may occur until policies are implemented.

5. Key Issues Emerging from GST 2.0

Beyond slabs and exemptions, several operational challenges could define how successful GST 2.0 becomes:

Will Consumers Actually Benefit?
The anti-profiteering provisions ended in April 2025, meaning businesses are no longer legally required to pass on GST rate reductions to consumers. While the government’s goal remains to ensure consumer benefit, it is uncertain whether market forces alone will deliver fair pricing. With GST 2.0 and its rate rationalization, there is a possibility that anti-profiteering measures may be reintroduced for a limited period to ensure that tax cuts reach end consumers. Any formal decision on this will be part of the broader GST 2.0 reforms.
Inverted Duty Structure – A Key Concern
One major uncertainty is how input tax credit (ITC) will be treated when GST rates are cut. If businesses stocked up on raw materials or finished goods at higher tax rates and now sell them under a lower slab due to the slab change, they could be left with unused ITC.
What the law says: Section 54(3) of the CGST Act allows refunds when the tax on inputs is higher than the tax on outputs.
What Circular 173 says: Refunds are only allowed if the difference is due to special concessional notifications. If the difference happens just because rates are reduced (e.g., 18% → 12%), refunds are not allowed.
What this means: Businesses with existing inventory may have to absorb the extra tax cost, which could reduce the benefit of GST cuts for consumers. Without a transition mechanism, this could also lead to disputes or legal challenges.
Impact on Promotional Schemes
With GST slabs being rationalised, businesses can redesign promotional schemes more freely, without worrying about mixed-supply tax complications. Companies will have an opportunity to pass on benefits to consumers through value-added offers. However, some businesses in mid-slabs may need to reassess their strategies as rate differences could affect margins. Careful planning of promotions will be essential.
E-Invoicing, Return Filing & Transition
Businesses with turnover above ₹10 crore are already required to report e-invoices to the IRP within 30 days of issuance. Under GST 2.0, they will additionally need to align their e-invoicing and return filing processes with the new rationalised slabs. Invoices issued before the effective date of the new rates can continue to use old rates, while invoices issued after must apply the updated rates. Clear transition guidelines will be essential to avoid system or reporting issues and ensure smooth implementation of GST 2.0.
Implementation Timeline & Market Readiness
Businesses may face challenges if the GST 2.0 reforms are implemented on short notice. Updating pricing, packaging, IT systems and internal processes in time could create operational pressure. For consumers, this could mean that the benefits of lower GST rates may take time to reflect in product prices, delaying the expected savings. Careful planning and early communication will be key for businesses to ensure a smooth transition.

Road Ahead

The GST 2.0 reforms, backed by PM Modi and deliberated by FM Nirmala Sitharaman with the GoM, aim to simplify India’s indirect tax regime, reduce disputes, and enhance compliance. Yet, clarity on timelines, ITC handling, and consumer benefit safeguards will determine whether this “Diwali bonanza” translates into lasting gain for both businesses and citizens.

For businesses, the overhaul promises lower operational costs, fewer errors, and a streamlined tax process if they prepare early. For consumers, it offers transparency, potential savings on essentials, and clear pricing on luxury items if benefits are passed on.
With solutions like IRISGST, organizations can navigate these reforms seamlessly, ensuring accurate reporting, early reconciliation, and optimized ITC management, making GST 2.0 not just a compliance requirement but an opportunity to strengthen financial controls.

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Streamline Your GST Compliance with IRIS GST Software

IRIS has been helping over 1000 businesses maximize their ITC Claim with a smooth GST return filing, and advanced reconciliation models

With IMS in IRIS GST Software, you can:

Fetch your IMS Dashboard invoices into IRIS GST Software as often as needed.
Reconcile IMS invoices with your Purchase Register to determine the appropriate actions.
Bulk action invoices based on reconciliation results using custom filters and categories.
Get a clear view of your reconciliation status with a comprehensive comparative summary.
Refresh your GSTR-2B with every change you make in IMS.
Repeat these steps as many times as needed before filing GSTR-3B.
Easily communicate any concerns with suppliers regarding IMS invoices via email.
Download IMS reconciliation results for further review.
Prefer to handle actions externally? No problem – upload a CSV with your actions for each IMS invoice, and you’re all set to submit to GST.