How the proposed GST reforms will leave more money in your wallet

Eight years after the launch of the indirect tax regime, the Prime Minister signalled that the next generation goods & services tax (GST) reforms are on the way. These could put more money in people’s pockets, ease the burden on businesses, and inject fresh energy into the economy before the year ends.

The government’s new blueprint, now being considered by a group of ministers (GoM), rests on three big goals: simplifying tax rates; fixing structural issues; and making life easier for both businesses and consumers. While these may sound like technical policy terms, they have a very real impact on everyday lives—from the price you pay for groceries to how quickly a small shopkeeper gets his tax refund.

GST rate rationalisation is the first pillar of major reform actively being pursued by the GoM, signalling a clear intent to make the tax regime simpler, fairer, and more growth-oriented.

Right now, there are multiple slabs: 0%, 5%, 12%, 18%, and 28%. The plan is to move towards just two main slabs—a standard rate of 18% and a lower “merit” rate of 5%—with only a handful of exceptions. Under the proposed rate rationalisation, many daily-use essentials such as household groceries, cleaning supplies, stationery, basic kitchenware, and common footwear, which currently attract 12% GST, could be moved to the 5% slab.

This shift would directly reduce prices for the common man, making everyday living more affordable and putting more disposable income in people’s hands. With the end of the GST compensation cess, the government has more fiscal room to realign rates sustainably, without hurting state revenues.

The second pillar of structural reforms includes inverted duty structure correction and resolving classification disputes. The inverted duty structureis a persistent problem where the GST rate on raw materials is higher than the rate on the final product. This results in excess input tax credits stuck in the system, effectively locking up money businesses could otherwise use for salaries, new stock, or expansion.

Garment makers, for example, buy synthetic fabric taxed at 18% but sell readymade garments at 12%. Footwear manufacturers pay 18% GST on inputs like soles and uppers but sell shoes under ₹1,000 at 12% GST.

Mobile phone makers pay 18% on some components but collect only 12% on the finished phone. The newspaper and printing industry faces a similar headache—printing ink and certain types of paper are taxed at 12% or 18%, but newspapers themselves are exempt, meaning publishers can’t claim back the tax they’ve paid on inputs.

For small regional newspapers, already battling declining ad revenue, this is a serious cash flow drain. Fixing these mismatches would free up working capital across industries, making them more competitive and resilient.

Sore spots

Classification disputes in situations where similar products or services are taxed at different rates, are another sore spot, leading to confusion, compliance headaches, and court cases.

The “paratha versus roti” saga is one widely publicised example. But disputes go far beyond that: whether printing school textbooks is a supply of goods at 12% or a service at 18%; or whether a mobile charger counts as a “component” taxed at 12% or an “accessory” taxed at 18%.

These might sound technical, but for businesses, the difference can mean substantial demand in unexpected tax bills. Simplifying and clarifying classifications could dramatically cut litigation and bring much-needed predictability.

The third pillar, ease of living, focuses on making GST less of a burden to comply with, especially for small traders, startups, and exporters. Business registration is set to become fully online, faster, and less paperwork-heavy. GST returns could come pre-filled, based on data the system already has, leaving taxpayers to simply verify and submit. Refunds, often delayed for months, could be processed faster and more automatically, easing cash flow pressures.

For exporters, especially in sectors like textiles, engineering goods, and processed foods, the proposed GST reforms could be a much-needed buffer against rising global trade pressures, including recent tariff hikes by the US. By correcting inverted duty structures and ensuring faster GST refunds, exporters would enjoy lower input costs and improved liquidity, helping them stay competitive in international markets despite external headwinds.

In essence, GST 2.0 could put more money in people’s pockets, ease the way for businesses, and power the economy forward—all while keeping tax rates in check.

Mayank Mohanka is the founder of TaxAaram India and a partner at S.M. Mohanka & Associates. Views are personal