GST 2.0: My Predictions for a Tax Revolution

The 56th GST Council meeting, set for September 3rd and 4th, 2025, in New Delhi, is shaping up to be a defining moment for India’s indirect tax system. Drawing on my close look at what happened in previous GST Council meetings—from the 50th through the 55th—and considering the current economic and political landscape, I believe this session is poised to usher in a new, simpler era for the Goods and Services Tax, a phase many are calling “GST 2.0.” There is a rare convergence of factors at play: a stable economy, low inflation, and a strong political will, all suggesting that the Council is ready to move beyond small adjustments and towards genuine, foundational reform.

Based on my analysis, I predict that the Council will make definitive progress on all major agenda items. The most significant move is the likely approval of a two-slab GST rate structure, a long-awaited reform designed to simplify the existing four-tier system. This change, however, is likely tied to a new financial arrangement with states, which is also on the table. We expect the Council to agree on a temporary “additional levy” on sin and luxury goods to protect state revenues once the current compensation cess expires. Furthermore, the meeting should bring targeted relief to key industries by correcting long-standing tax imbalances and offering direct benefits to taxpayers. Finally, the next phase of the digital compliance roadmap is expected to be announced, with a focus on extending e-invoicing to business-to-consumer (B2C) transactions. Collectively, these actions signal a shift toward a more mature, transparent, and investment-friendly tax environment, requiring businesses to prepare for a new phase of compliance and strategic planning.

The Macroeconomic and Political Backdrop to the 56th Meeting

I believe the upcoming GST Council meeting is taking place at a highly opportune time. India is enjoying a favorable macroeconomic climate, and there’s a strong political motivation for reform. This unique combination of economic stability and political will creates a powerful window for the government to implement significant structural changes without the risk of major fiscal disruption.

The nation’s fiscal health provides a solid foundation for ambitious reforms. Gross GST collections have shown remarkable consistency and growth, reaching ₹1.86 lakh crore in August 2025, a 6.5% year-on-year increase. This robust performance gives both the central and state governments a stable revenue base, which lessens the fear of revenue shortfalls that might otherwise discourage major rate cuts. At the same time, India’s broader economic indicators are exceptionally strong. The real Gross Domestic Product (GDP) grew by 6.5% in the fiscal year 2024-25, marking the highest growth rate among major economies, with similar growth expected for FY26. A particularly crucial factor is the multi-year low inflation, with the Consumer Price Index (CPI) easing to 2.82% in May 2025. This low-inflation environment gives the GST Council plenty of room to consider tax reductions and rationalization without the risk of stoking price increases.

On the political front, the stage is set for a major announcement. Prime Minister Narendra Modi has publicly promised significant GST reforms and rate cuts, framing them as a “Diwali gift” to the nation. This public commitment turns the meeting from a routine administrative review into a high-stakes event. The GST Council, which requires a three-fourths majority for decisions, must now deliver on this promise. The political dynamic is further complicated by the demands from eight non-BJP ruled states, which have expressed serious concerns about a potential 15-20% revenue shock from the proposed rationalization. These states are pushing for a new “additional levy” on sin and luxury goods to protect their revenues, seeking a guarantee of 14% annual revenue growth for at least five years. Resolving this demand is a critical step to secure the states’ support for the broader reform package. The historical precedent of the GST Council’s decisions, which are typically the result of extensive groundwork by ministerial committees, suggests that a consensus has likely been pre-negotiated. This methodical approach, which has proven effective in tackling complex issues like the taxation of online gaming, indicates that a deferral of these major decisions is highly unlikely at this meeting. The alignment of a healthy fiscal position, low inflation, and a clear political mandate creates a unique and powerful opportunity, making the implementation of significant, taxpayer-friendly reforms a high-probability outcome.

Analysis of Historical GST Council Trends (50th-55th Meetings)

To understand what is likely to happen at the 56th meeting, I have looked at the patterns of the Council’s decision-making in recent history. The period from the 50th to the 55th meetings, in particular, shows a clear shift toward a more structured, ministerial-committee-driven approach that tackles systemic issues and uses technology to improve compliance.

A significant precedent was set during the 50th and 51st meetings regarding the taxation of online gaming, casinos, and horse racing. After extensive deliberation, the Council provided a definitive clarification, imposing a uniform 28% GST on the full face value of bets, regardless of whether the activity was a “game of skill” or a “game of chance.” This decision, which required an amendment to the CGST Act, demonstrates the Council’s ability to take swift and impactful action on contentious, revenue-sensitive matters. The success of using a ministerial committee to study and resolve this complex issue serves as a template for the current meeting, which is deliberating on the reports of multiple ministerial committees covering rate rationalization, compensation cess, and insurance.

The Council has also consistently worked to correct inverted duty structures, though not without challenges. For example, the GST rate on molasses was reduced from 28% to 5% to fix a long-standing issue. Similarly, the rate on uncooked/unfried snack pellets was lowered from 18% to 5%. However, the Council’s decision on textiles and footwear was deferred after the 45th and 46th meetings due to industry protests, highlighting the political sensitivities involved in such corrections. This history suggests that while the Council is committed to rectifying such anomalies, the final decision is a careful balance of economic logic and political consensus. The continued focus on this issue, as seen in the discussions around fertilizers and drones, confirms it remains a high-priority agenda item.

In the realm of compliance, the Council’s trend is clear: a phased, technology-driven approach aimed at easing the burden on small businesses while curbing tax evasion. The introduction of e-invoicing is a prime example, with the mandatory turnover threshold progressively lowered from ₹500 crore to ₹5 crore over several phases. The 53rd and 54th meetings furthered this agenda by simplifying return filing for small businesses, extending deadlines, and launching a pilot project for B2C e-invoicing. This ongoing commitment to digital transformation is also evident in other measures, such as the introduction of an optional Invoice Management System (IMS), a new ledger for ITC reclaim, and a track-and-trace mechanism for evasion-prone goods. The Council has also provided relief measures, such as the reduction in the pre-deposit requirement for appeals from 25% to 10% and the waiver of interest and penalties for demand notices not involving fraud for the initial years of GST implementation. This pattern of gradual, yet decisive, digital reform and targeted taxpayer relief sets a clear precedent for the 56th meeting, where a major announcement on B2C e-invoicing and other technological enhancements is highly probable.

Predicted Outcomes of the 56th GST Council Meeting

I believe the 56th GST Council meeting is not expected to be a routine session but a watershed event that sets the stage for a major overhaul of the GST framework. My analysis points to definitive action across the core agenda items, with outcomes shaped by the Council’s historical patterns of consensus-building and its commitment to digital governance and sectoral development.

Landmark GST Rate Rationalization: The Two-Slab Future

The most significant and anticipated outcome, in my opinion, is the final approval of the ministerial committee’s proposal to move to a two-slab GST structure. The current four-tier system of 5%, 12%, 18%, and 28% is slated to be replaced by two main rates: 5% for essential goods and 18% for most other items. A small list of “sin” goods and luxury items will be taxed at a higher 40% rate, with an additional levy to address states’ revenue concerns. The reclassification of items currently in the 12% and 28% brackets will be a core part of this decision, with the majority shifting to the 5% and 18% slabs, respectively. For instance, consumer durables like air conditioners, TV sets, and refrigerators, which are currently taxed at 28%, are expected to move to the 18% bracket. This would provide significant relief to the middle class and is a key part of the “Diwali gift” promised by the government.

This move from a four-slab structure to a two-slab model is a direct answer to the long-standing goal of simplifying the tax system. It reduces classification ambiguity and is expected to lead to a more stable tax base over time. The successful implementation, however, hinges on the Council’s ability to navigate the parallel discussion on a new compensation mechanism for states, without which political consensus for rate rationalization would be difficult to achieve.

The Resolution of the Compensation Cess Debate

I expect the GST Council to reach a consensus on a new mechanism to address the fiscal concerns of states following the expiration of the GST compensation cess. The existing cess, which was extended until March 2026, is nearing its sunset. With the proposed rate rationalization threatening a potential 15-20% revenue shortfall for states, a group of eight non-BJP ruled states has demanded a new “additional levy” on sin and luxury goods to guarantee their revenues based on a 14% annual growth assumption.

The GST Council will likely agree on a temporary “additional levy” on sin and luxury items, beyond the proposed 40% rate, to be collected and distributed to the states. This approach directly addresses the states’ demand for a fiscal safety net, and the historical precedent of using loans secured against future cess receipts during the pandemic provides a template for this kind of arrangement. The debate over the compensation cess is a fundamental test of India’s fiscal federalism under GST. The proposed new levy shows that the GST framework is still evolving to meet the needs of states and maintain a cooperative federal structure.

Targeted Sectoral Relief and Inverted Duty Correction

The GST Council has consistently used its rate-setting power to address specific sectoral issues and promote economic goals. The 56th meeting is expected to continue this trend with a focus on three key sectors: drones, fertilizers, and insurance.

• Drones: The Council is highly likely to approve a uniform 5% GST rate for all commercial drones, correcting a long-standing classification issue. Currently, drones are taxed at 5% as aircraft (HSN 8806) but at 18% if they have an integrated camera (HSN 8525), a common feature. This tax inversion and ambiguity have hampered the industry’s growth. The decision to fix a uniform rate would align with the government’s broader push to promote the drone sector, which is viewed as a critical technology for agriculture, logistics, and surveillance. The move would lower costs for manufacturers and consumers, boost innovation, and expand the market.
• Fertilizers: The Council will likely take up the proposal to levy a uniform 12% GST on both finished fertilizers and their inputs. This is a critical move to correct a severe inverted duty structure where finished goods (fertilisers) are taxed at 5% while inputs (e.g., ammonia) are taxed at 12% or 18%. This anomaly locks up working capital for manufacturers and leads to refund delays, adding hidden costs to the agricultural supply chain. The government may offset any potential price increase to farmers by routing a direct subsidy through the Direct Benefit Transfer (DBT) framework.
• Insurance: A definitive decision on the GST exemption or reduction for health and life insurance premiums is a strong possibility. A ministerial committee has already reviewed a proposal to exempt health and life insurance premiums for individuals, which would have an annual revenue impact of around ₹9,700 crore. The current GST rate on insurance premiums is 18%, and a reduction to 5% or a complete exemption would be a major relief measure for the common man. The committee’s review and the government’s public promise of tax relief make a positive decision on this matter highly probable.

Compliance Simplification: The Next Phase of Digitization

The GST Council will continue to enhance the digital framework to simplify compliance and curb tax evasion. The next logical step, following the successful implementation of e-invoicing for business-to-business (B2B) transactions, is the rollout of e-invoicing for the B2C segment. The 54th meeting launched a pilot project for this, and the 56th meeting is expected to announce the next phase of its mandatory implementation.

Additionally, the Council may provide further clarity on the Invoice Management System (IMS) and the new ledgers for Reverse Charge Mechanism (RCM) and Input Tax Credit (ITC) reclaim, which were discussed in previous meetings. These systems are designed to improve ITC reconciliation and reduce errors, creating a more robust and self-healing tax system. Finally, the Council is expected to clarify the implementation of a track-and-trace mechanism for evasion-prone goods, such as tobacco, a measure that was approved in the 55th meeting. The evolution of the GST system is heavily reliant on technology, and the GSTN is being leveraged not just for compliance but as a powerful tool for revenue protection and administrative efficiency.

Summary of Predictions: A Comprehensive Table for Business Professionals

In the tables below, I have provided a structured summary of what I believe will be the key outcomes of the 56th GST Council meeting.

Table 1: Predicted Outcomes of the 56th GST Council Meeting

Table 2: Predicted GST Rate Rejig for Key Goods and Services

Conclusion and Strategic Recommendations

I believe the 56th GST Council meeting is poised to mark a pivotal moment in India’s tax history. The convergence of a robust macroeconomic climate, a clear political mandate, and a methodical, committee-driven reform agenda indicates that the Council is ready to move from a transitional phase to a more mature and simplified tax regime. The likely outcomes, including the approval of a two-slab rate structure and a new fiscal compact with states, are not just incremental changes but foundational reforms that will reshape the tax landscape for years to come. These decisions are not merely about revenue collection; they are powerful policy levers aimed at promoting economic growth, fostering key sectors, and providing tangible relief to the common citizen.

For business professionals, this period of transformation demands proactive strategic planning. The following recommendations provide my roadmap for navigating the changes ahead:

• Re-evaluate Financial Models and Pricing: The anticipated rate rationalization, particularly the shift of consumer durables and two-wheelers to a lower tax bracket, necessitates an immediate review of pricing strategies and profitability models. Financial teams should prepare for a potentially different revenue mix and analyze the impact on both top and bottom lines.
• Recalibrate Supply Chain and Logistics: Sectors impacted by the correction of inverted duty structures, such as fertilizers, textiles, and drones, must prepare to recalibrate their supply chain costs. While an initial price increase may be seen in some cases, the long-term benefits of reduced working capital blockage and a simplified tax structure are substantial.
• Invest in Digital Compliance Readiness: The likely rollout of B2C e-invoicing is a clear signal that the GST system is becoming fully digitized. Businesses in the B2C segment must prepare their IT systems and train their teams to handle the new compliance requirements to avoid penalties and ensure a smooth flow of Input Tax Credit along the supply chain.
• Monitor Official Notifications Closely: While this report provides a detailed predictive analysis, the final nuances of the reforms will be contained in the official notifications released by the Central Board of Indirect Taxes and Customs (CBIC). Businesses should monitor these announcements closely and engage with tax professionals to ensure a seamless transition and full compliance.

I believe this “GST 2.0” era promises a more efficient, transparent, and investment-friendly tax environment. Businesses that anticipate these changes and proactively prepare will be best positioned to capitalize on the new opportunities and navigate the new compliance landscape with confidence.