India is on the verge of a significant transformation in its Goods and Services Tax (GST) system. Eight years after its historic implementation, GST is still reshaping the country’s indirect tax framework by incorporating technology, broadening the tax base, and fostering economic growth. Amid consistent revenue highs and heightened expectations from businesses and consumers, a new wave of reforms – dubbed “GST 2.0”- is set to address long-standing industry concerns and further streamline tax administration.
Before we delve deep into the recommendations, it is imperative to understand the common challenges faced by small, medium and large taxpayers alike in GST:
1. The Unfinished Agenda: Current Challenges in GST Landscape
A. Complex Compliance Burden:
√ 10+ different return types.
√ No revision facility for GSTR-3B, once filed.
√ Duplicity of notices due to inherent limitation in data matching by GSTN portal.
√ Reliance on technology based systems burden small taxpayers lacking access to adequate digital infrastructure.
B. Inverted Duty Structures: Several sectors, such as textiles, leather, etc face an inverted duty structure wherein the tax on inputs is higher than the tax on output. Refunds in such cases are practically delayed at department level, especially hurting exporters and MSMEs.
C. Multiplicity of Tax Rates: India’s GST still runs on five slabs (0%, 3%, 5%, 12%, 18%, 28%) plus cess. The 12% slab in particular creates disputes over classification (e.g., biscuits @18% v/s rusk @5%). Rationalisation towards a two rate system is widely demanded.
D. Litigation Bottlenecks: The absence of a functional GST Tribunal has pushed even routine disputes to High Courts, creating uncertainty. Aggressive use of Section 74 / 74A (fraud-related provisions) for minor lapses has also eroded trust.
E. Targeted rate pruning instead of exemptions for insurance/health: The insurance industry has been in focus previously as well, demanding exemption from payment of GST. However, providing full exemption will result in ITC blockage to insurers. Consequently, insurers may not pass on the benefit to the lower / middle class Indians.
F. Refunds and ITC Roadblocks: Exporters face prolonged refund cycles, with mismatch in invoices or shipping bills often restarting timelines. GST paid on capital goods remains blocked under LUT (zero-rated exports), discouraging investment.
2. The Big Reforms that Industry Demands
A. From Complexity to Simplicity: Two-Rate Core Structure With A Calibrated “Sin” Band
At the heart of this reform lies an ambitious revamp of GST rates and slabs. Policymakers are engaging in extensive consultations to phase out the archaic multi-slab structure and move towards a much leaner setup. The proposal currently before the Group of Ministers – and set for approval by the GST Council this festive season – aims to eliminate the intermediate 12% and 28% slabs. In their place, only two principal rates will be in focus: 5% (merit rate for essentials) and 18% (standard rate for most goods and services). For a select handful of luxury and sin goods, a top slab of 40% will remain as a revenue buffer.
This bold rationalisation not only promises to end the perennial confusion and disputes over classification (such as items arbitrarily moved between 5%, 12%, and 18%) but also helps businesses plan efficiently and consumers save more. Daily-use items, agricultural goods, and health-related essentials are likely to become cheaper, boosting affordability and consumption – especially for farmers, MSMEs, and the middle class.
B. Automation and Ease of Compliance: Tech-driven Administration
July 2025 marked another key milestone in the GST return filing. All GST returns, especially GSTR-3B (output supplies), are now auto-populated and hard-locked once submitted – eliminating manual edits and preventing subsequent mismatches. A strict three-year time bar has also been set for filing back-dated returns and amendments. The launch of a new E-Way Bill portal and increased two-factor authentication further digitises the compliance process, helping both large enterprises and smaller traders file more securely.
While the transition to full automation continues, some concerns remain. Businesses worry about the diminishing scope for human intervention in correcting errors, as every field increasingly hinges on data integrity at the e-invoice generation stage. Yet, the push for single-point, tech-driven returns is expected to dramatically reduce fraudulent filings, improve transparency, and simplify data reconciliation.
C. Fast-Track Dispute Resolution: GST Appellate Tribunal Must Go Live
India has expedited the creation of the GST Appellate Tribunal (GSTAT), which is expected to begin operations in 2025. Thirty-one state benches and a principal bench in Delhi now have judicial and technical members selected by the government. This would lessen businesses reliance on the already overworked Supreme Court and High Courts by giving them access to a specific, time-bound dispute resolution forum for the first time. By increasing the speed and clarity of tax litigation, this move is anticipated to liberate cash that has been blocked and boost investor confidence.
However, it’s important that government make the Tribunal functioning at the earliest to reduce the rising burden on High Court and Supreme Court of India.
D. Tackling MSME Challenges: Refunds and ITC Bottlenecks
Despite robust collections, GST refunds – especially for MSMEs and exporters – remain a persistent pain point. Delays extend well beyond the statutory 60 – 90 day window, causing acute working capital stress for small businesses. Frequent mismatches between GSTR-1, GSTR-2B, and GSTR-3B returns, officer-level verifications, and deficiency memos mean that liquidity often gets stuck for months. In the recent past, the auto-generated notices on monthly basis have further heightened the compliance woes of industry.
Practical solutions increasingly involve automated processing for refunds, robust real-time tracking, and GSTN portal fixes. The government is prioritising faster, data-driven solutions to resolve ITC mismatches, with advisory support for annual returns (GSTR-9) and special help for exporters.
E. Correcting Inverted Duty Structure
Review and amend the tax mechanisms in sectors facing inverted duty structures, ensuring an equitable balance of input and output taxes to maintain healthy cash flows. Alternatively, provide a specialized reduced refund window with fewer documentation check to reduce the cash blockage burden on taxpayers.
F. Sector Specific Fixes
a. Exports: Automate T+30 refund for zero-rated supplies with risk flags only for anomalies; expand RoDTEP/RoSCTL alignment with GST rate changes.
b. E-commerce: Raise TCS/TDS de minimis thresholds and simplify returns for marketplace sellers.
c. Energy transition: Consider a neutral rate for EV components/charging, paired with a compensation-neutral cess roadmap post-March 2026.
3. What These Reforms Mean For Industries
A. FMCG & daily-use goods
Likely winners as many 12% items drop to 5%; pricing power and volume uplift, particularly in rural/aspirational segments. Watch for input ITC adjustments during transition.
B. Consumer durables & small autos
If 28% narrows to 18% for a chunk of durables/small cars, expect price cuts, channel restocking, and demand pull-forward into festive season. Margins may expand if input rates are aligned alongside.
C. Insurance & healthcare
If exempted, premiums fall immediately; however, insurers may lose ITC, partly offsetting gains unless a credit-relief mechanism is created. A reduced rate (5%) is cleaner for value chains (hospitals, TPAs, diagnostics) that rely on input credits.
D. MSMEs
Lower rate complexity + lighter e-invoice controls for smaller brackets reduce compliance costs and working-capital stress; dispute resolution via GSTAT shortens cash lockups.
E. Exporters
Faster, risk-based refunds and inversion clean-up reduce the embedded tax in exports, improving price competitiveness.
F. Online gaming
With the passage of bill banning online money games and advertisements related to same in Parliament, India might see a user migration offshore. This will have a big impact on the revenue exchequer as the industry witnessed multi-fold year-on-year growth in recent years. However, on the positive aspect, the government is still inclined towards promoting eSports and online social gaming. However, the fine print of the legislation is yet to be analysed.
G. Oil & power value chains
Status quo near term as petroleum/electricity stay outside GST; input tax stickiness will persist for logistics, aviation, and power distribution. Any future inclusion will need a credit-ring-fenced, revenue-neutral design and phased state compensation.
4. Looking Ahead: What Businesses Must Do
As the timeline for GST 2.0 approaches, businesses are urged to adapt rapidly:
A. Prepare for new slabs and item re-categorisation – updating pricing, invoices, and compliance software as chances of re-introduction of Anti-profiteering provisions are high.
B. File GST returns early and accurately – with locked returns, mistakes become costly and unwieldy to fix, to reduce system generated notices.
C. Leverage automation: accounting systems, e-invoice integration, AI reconciliation, and regular team training.
D. Closely track cash flow, refund status, and compliance notifications (using dashboards and automated alerts).
E. Revisit your financials to make changes arising from ITC reforms.
F. Prepare yourself in advance for quicker disposal of litigations post GSTAT becoming functional (standard operating procedures, reconciliations, and electronic documentation bundles).
5. The Road Ahead
After 8 years of its introduction, we can fairly say that GST has evolved into a mature system that generates record collections and provides real-time visibility into India’s economy. Yet, its promise of being a truly “good and simple tax” hinges on addressing complexities that still affect taxpayers.
The next-generation GST reforms will fundamentally shift India’s tax architecture. The consensus emerging from industry and professional bodies is simple:
√ Simplify GST rates
√ Unlock liquidity trapped in ITC
√ Streamline compliance tech, and
√ Ensure justice through faster adjudication mechanisms.
The Union government and GST Council have already shown willingness to reform – whether by rationalising slabs or introducing tech-driven compliance. The next phase, GST 2.0, must focus on making the system business-friendly, fair, and predictable while safeguarding revenues.
The journey from complexity to clarity and automation, backed by record revenues, sets up GST as a cornerstone for India’s economic expansion – and as Prime Minister Modi described, a “Double Diwali” in both savings and opportunities for all sections of society.
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