GST 2.0: Anticipations from 56th GST Council Meeting

Introduction

The Goods and Services Tax (GST), introduced in July 2017, marked one of the most ambitious tax reforms in India’s fiscal history. Eight years later, the framework is once again at a critical juncture. The 56th GST Council meeting, scheduled on 3rd and 4th September 2025 in New Delhi, is widely perceived as a landmark session with the potential to redefine the contours of India’s indirect tax system.

This meeting comes in the backdrop of the Hon’ble Prime Minister’s Independence Day address on 15th August 2025, where he spoke of “next-generation GST reforms” that could act as a festival season relief for citizens and businesses. The discussions are expected to focus on rate rationalisation, insurance premium taxation, the future of compensation cess, and simplification of compliance. While these themes carry transformative potential, it is imperative to underline that all proposals are subject to deliberation and approval by the GST Council. The final shape of reforms will be known only after the official press conference by the Union Finance Minister post-meeting.

GST Rate Rationalisation: Towards a Simplified Structure

One of the most debated aspects of GST since inception has been its multi-slab structure. Presently, goods and services fall under multiple tax rates—5%, 12%, 18%, and 28%, with certain items also attracting a compensation cess. This system, though functional, has often led to classification disputes, inverted duty structures, and compliance complexities.

The proposal before the Council envisions a two-tier GST structure, with 5% as a merit rate for essentials and 18% as a standard rate for most goods and services. A higher rate, around 40%, is being considered for ultra-luxury and demerit goods, effectively subsuming the current compensation cess mechanism. Under such rationalisation, a large part of the goods presently in the 12% bracket may shift to 5%, while many goods taxed at 28% could be moved to 18%.

For consumers, this could mean lower prices on everyday items, appliances, and small cars. For industry, it may bring clarity and reduce litigation. At the same time, the implications for state revenues are significant. Many states rely on collections from goods in the higher tax bracket, and therefore, the discussion on rate cuts is likely to be accompanied by debates on fiscal compensation or alternative revenue mechanisms.

 Insurance Premiums: Relief on the Horizon

Another major reform area under discussion is the treatment of life and health insurance premiums. Currently, individuals purchasing such policies pay 18% GST, which increases the cost of coverage and acts as a deterrent to widespread adoption.

The reform proposal places these services in the exempt category, thereby removing GST from premiums payable by individuals. If approved, this change could significantly improve affordability of insurance, align with the government’s social security objectives, and encourage households to invest in financial protection.

However, two challenges are anticipated. First, ensuring that insurers pass the tax benefit transparently to policyholders. Second, balancing the loss of revenue for states which currently benefit from this segment of GST collections. These concerns are expected to be addressed during the Council’s deliberations.

Compensation Cess: Approaching Sunset

The compensation cess, introduced at the time of GST rollout, was designed as a temporary measure to ensure states were protected against revenue loss during the transition. Initially promised for five years, it was extended to service borrowings taken during the pandemic. Presently, it applies mainly to luxury cars, aerated beverages, tobacco, and similar products.

The 56th Council meeting is expected to review the future trajectory of this cess. One line of thought is to discontinue it altogether by early 2026, or even advance the timeline to align with the new slab structure. Another approach being discussed is to merge the cess into the proposed 40% slab for sin and luxury goods, thus eliminating the need for a separate levy.

For states, this raises critical concerns. The end of compensation cess implies a loss of a dedicated revenue stream, especially if accompanied by rate cuts. For the Centre, the expectation is that enhanced consumption resulting from lower tax rates could partly offset the immediate loss. A delicate balance will have to be achieved to ensure reforms do not jeopardise the fiscal health of the federal structure.

GST 2.0: Focus on Compliance and Ease of Doing Business

Beyond rate and revenue considerations, the larger vision of “GST 2.0” lies in compliance simplification and digital ease. Several proposals are on the table:

• Pre-filled GST returns, reducing the burden of data entry and reconciliation.
• Automated refunds, especially for exporters, to speed up the release of working capital.
• Addressing inverted duty structures in sectors such as textiles, fertilizers, and footwear.
• Enhanced technology-driven monitoring, ensuring higher compliance with minimal intrusion.

These initiatives are expected to improve taxpayer experience, reduce disputes, and create a more predictable tax environment. They also align with the government’s broader push toward digital governance and ease of doing business.

The Road Ahead

The 56th GST Council meeting is being watched closely by policymakers, businesses, and citizens alike. Expectations are high, given the scale of the proposed reforms and the Prime Minister’s own remarks pointing towards substantial relief. Yet, it must be remembered that the Council works on consensus. States will weigh their fiscal needs carefully, and the final outcomes may involve calibrated adjustments rather than sweeping overnight changes.

Once the Council concludes its deliberations, the Union Finance Minister is expected to address the press, formally announcing the decisions and clarifying the timelines for implementation. Until then, all discussions remain in the realm of proposals.

Conclusion

As India approaches the festive season, the prospect of lower taxes on essential goods, relief on insurance premiums, and a more intuitive tax structure has generated significant optimism. Businesses anticipate reduced compliance hurdles, while consumers hope for greater affordability. States, on the other hand, seek assurances that revenue stability will not be compromised.

The 56th meeting thus represents not just a routine review but a potential inflection point in India’s GST journey. If consensus is achieved, it could mark the beginning of a more streamlined, equitable, and growth-oriented tax system—truly a GST 2.0.

CA. Nitin Bansal , State-President, CA-Cell BJP Haryana	CA. Shiva Goyal , State-Executive Member, CA-Cell BJP Haryana.