Next-Generation GST After One Year: Lower Rates, Wider Tax Base and the Push for Simpler Compliance
A recent review of the next-generation GST reform (often called "GST 2.0") looked at its results about one year after the new rates began on 22 September 2025.
The reform cut most GST rates and moved India to a simpler structure with two main rates, 5% and 18%, plus a special 40% rate for a small list of harmful and luxury goods.
Reported taxable supplies (the value of sales on which businesses report GST) grew 25.8% between October 2025 and July 2026, compared with the same months a year earlier. Sales to consumers (B2C) rose 26.7%.
The growth was seen across all 11 sector groups and all major states. This suggests that lower rates went along with more economic activity being reported inside the tax system.
Gross GST collections reached ₹12.46 lakh crore in April-September 2026, up 11.6% from a year earlier, with double-digit growth every month from June to September.
The next phase focuses on process reforms: easier compliance, protection of genuine buyers' credit, and fewer disputes, with small and medium firms expected to gain most from a single national market.
GST Rate Rationalisation (Two-Rate Structure)
GST rate rationalisation means cleaning up the rate structure of the Goods and Services Tax (GST): fewer tax slabs, lower rates on common goods, and fixing cases where similar items are taxed differently. In September 2025, India moved from four main GST slabs (5%, 12%, 18% and 28%) to two main slabs, 5% (merit rate) and 18% (standard rate), plus a special 40% (demerit rate) for a short list of "sin" and luxury goods. This is the biggest change to GST rates since GST began in 2017.
One year after the two-rate structure began, reported taxable supplies grew 25.8% and gross collections still rose 11.6% in April-September 2026. This suggests the lower rates have been offset by a wider tax base and more reported activity. The review now points to the next step: simpler processes on top of simpler rates.
The GST Council (Article 279A)
The GST Council is a constitutional body of the Union Finance Minister and the finance ministers of all states. It recommends GST rates, exemptions, thresholds and rules. It was created by Article 279A, inserted by the 101st Constitutional Amendment Act, 2016. Since both the Centre and states tax the same goods and services under GST, all rate changes are decided together in the Council.
The rate rationalisation reviewed here was a Council decision, built on the Centre's proposal and the GoM's discussion. The next phase of process reforms is also being placed before the Council.
Input Tax Credit (ITC) Mechanism Under GST
Input Tax Credit (ITC) lets a business subtract the GST it paid on its purchases from the GST it owes on its sales. This means tax falls only on the value added at each stage, and the final consumer does not pay "tax on tax". ITC is what makes GST a true value-added tax, and its rules are in Sections 16 to 21 of the CGST Act, 2017.
Lower and fewer rates reduce the risk of stuck credit, and smoother ITC lowers costs for small and medium firms. That is a key reason the reform is expected to help them gain from a single national market.
- New GST rates in force since 22 September 2025: 5%, 18% and 40%
- Reported taxable supplies: +25.8% (October 2025 to July 2026, year on year)
- B2C (business-to-consumer) reported sales: +26.7%
- Growth across all 11 sector groups and all major states
- Gross GST collections, April-September 2026: ₹12.46 lakh crore, up 11.6%
- Double-digit monthly growth from June to September 2026; nearly 15% growth over those four months together
- GST launched 1 July 2017; GST Council under Article 279A (101st Amendment Act, 2016)