India’s sweeping GST reset aims to simplify taxes and boost investments nationwide.
New Delhi: India’s GST reforms announced on 3 September have been described by the government as the biggest reset since the system was launched, and the long-term impact is expected to stretch far beyond what becomes cheaper or costlier today.
Official sources told the Sunday Guardian that the benefits of these reforms, which follow the announcement made by Prime Minister Narendra Modi during his 15 August Independence Day speech, while coming into effect from 22 September and showing quick results, will be felt most in the coming decades and will put India among the countries that have a simple and modern tax regime.
These reforms, officials believe, will start showing results at a macro level vis-à-vis increase in foreign investments in the coming 6–8 months. The 56th meeting of the GST Council was held in New Delhi under the chairpersonship of the Union Finance & Corporate Affairs Minister Nirmala Sitharaman.
The GST Council has collapsed the clutter of rates into just four—nil, five and eighteen percent, with a sharply targeted forty percent band for luxury and sin goods. For the ordinary consumer, this means milk, paneer, breads and medicines fall into the tax-free basket, most everyday products settle at five or eighteen percent, and only a handful of goods like luxury cars, aerated drinks or tobacco face the steepest levy. Officials described this as not just a simplification, but as a signal of intent to protect consumers, increase consumption, production, manufacturing and investment.
The council, the apex decision-making body for Goods and Services Tax, has 33 members: the Union Finance Minister (Chairperson), the Union Minister of State for Finance, and finance ministers or representatives from all 28 States and 3 Union Territories with legislatures. Decisions are made by consensus; if put to vote, the Centre holds one-third of the total weight, while the States and UTs together hold two-thirds. Proposals need at least three-fourths of the weighted votes to pass.
Officials told this newspaper that the rationalisation of GST rates is expected to result in a revenue loss of approximately Rs 48,000 crore annually.
However, the government believes that this decrease in revenue will be offset in the coming few months, especially in the festive season. “This estimated loss will be neutralised over time through increased consumption, expansion of the tax base, and improved compliance arising from a simplified slab structure,” a senior finance ministry official told the Sunday Guardian on Thursday.
In short, the government believes lower rates will unleash demand, which in turn will widen the pool of taxable activity and keep both Centre and states whole. The finance ministry official summed it up as choosing “volume over margin.”
Collections data from August 2025 shows why the government feels confident taking this bet. Gross GST revenue for the month stood at Rs 1.86 lakh crore, a 6.5% rise over August 2024, while net revenue after refunds reached Rs 1.67 lakh crore, up 10.7% year-on-year. Growth has been broad-based: Bihar reported a 15% jump, Karnataka and Andhra Pradesh grew by 15% and 21% respectively, and smaller states like Sikkim (+39%), Nagaland (+33%) and Meghalaya (+35%) saw exceptional gains. This steady revenue momentum, officials argue, provides the cushion for a short-term sacrifice in rates.
Consumers will experience the effect most directly in their shopping baskets. Goods like butter, cheese, footwear, soaps and shampoos have dropped from twelve to five percent GST, and appliances, cement, tyres and small cars have come down from twenty-eight to eighteen percent. For a family in Chennai or Patna, the difference may be a few hundred rupees on a monthly bill, but multiplied across millions of households it frees disposable income to be spent elsewhere.
Officials argue that this additional spending will “spur wider consumption, benefitting both producers and revenue collection.”
However, some experts have cautioned that companies may not pass on the reduced tax burden to end-consumers. Health insurance, for instance, has moved into the zero percent GST slab, but there is apprehension that insurers may still raise premiums, effectively absorbing the benefit rather than lowering costs for policyholders. This concern, officials told the Sunday Guardian, has been taken into account and it will be kept under watch.
Businesses, especially small and medium enterprises, have been given relief not just on rates but on process, officials explained.
The reforms have introduced a new system of risk-based refunds that promises ninety percent provisional credit within days, a shift that addresses one of the biggest pain points for exporters and manufacturers whose working capital was stuck in limbo. The Council also announced automated registration for low-risk firms within three working days, and in principle agreed to a simplified pathway for small e-commerce sellers. For a garment exporter in Kolkata or a digital seller in Jaipur, this means faster cash flow, easier market entry and less energy spent on compliance battles.
Some of the reforms have been undertaken to plug leaks. By shifting taxation of tobacco, gutkha and pan masala to the retail sale price, it has closed a loophole that allowed under-invoicing to shrink tax liabilities. Pairing that with a forty percent slab ensures that even if volumes rise, revenue from these products will stay strong. Sources said that complaints and feedback regarding backlogs too have been addressed. The Goods and Services Tax Appellate Tribunal will begin accepting appeals by the end of September and start hearings by December, with a deadline of June 2026 to clear the backlog.
This, officials said, would “significantly strengthen the institutional framework of GST by providing a robust mechanism for dispute resolution.” For companies, this translates into fewer years lost in court and more predictability in business planning. For investors, foreign and domestic, it reduces a key element of policy risk.
Globally, India now sits in the middle order. Its standard eighteen percent rate is lower than Russia’s twenty percent, broadly in line with Brazil’s seventeen to eighteen percent, but higher than South Africa’s fifteen percent and China’s six to thirteen percent. However, officials pointed to the change in the overall structure: very few large economies pair a low five percent slab with a very high forty percent deterrent band. Officials describe this as balancing affordability for the common man with accountability for luxury and harmful consumption.
What gives the reforms global weight is the scale and ambition. India is the largest democracy attempting such a wide-ranging consumption tax reset—covering 1.4 billion people under one regime.
Unlike the European Union’s patchwork VATs or China’s state-led model, this reset comes through a federal council of 33 members negotiating across states and political lines. For multinational corporations deciding where to place factories or service hubs, the simplification signals a more legible, rules-based system.
As one official put it, “A company investing today knows that for the next decade it will deal with a GST spine of five and eighteen percent—nothing more complicated.”
That clarity matters internationally because India is actively positioning itself as an alternative to China, Bangladesh and Vietnam in global supply chains.
Analysts note that if the reforms succeed in cutting compliance costs and litigation risks, India could strengthen its pitch as a hub for manufacturing and services at a time when many global investors are looking to diversify away from China.
For sovereign wealth funds and institutional investors, New Delhi’s willingness to trade off short-term revenue for long-term competitiveness is being closely read as a marker of policy maturity.
“In a global environment where several advanced economies are mulling higher consumption taxes to bridge deficits, India’s move in the opposite direction has the potential to tilt capital flows in its favour,” the official quoted above said.
