GST 2.0: A Landmark Reform for a 'Viksit Bharat'
UPSC Relevance
Prelims: Indian Economy (Fiscal Policy, Taxation - GST, GST Council, GST Slabs, Inverted Duty Structure); Indian Polity and Governance (Constitutional Bodies - GST Council, Finance Commission).
Mains:
General Studies Paper 2: Functions and responsibilities of the Union and the States, issues and challenges pertaining to the federal structure (GST Council, Finance Commission, State compensation).
General Studies Paper 3: Government Budgeting; Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment; Inclusive growth.
Key Highlights from the News
The 56th GST Council meeting brought about revolutionary changes in the country's GST structure, termed GST 2.0.
New Structure: The tax structure primarily shifted to rates of 0%, 5%, 18%, with a special rate of 40% for luxury goods and intoxicating products. The 12% and 28% slabs are mostly eliminated.
Main Reasons: Key reasons behind this change include preventing price reduction of 'sin' products as Compensation Cess is discontinued, and increasing domestic consumption to mitigate the economic impact of US tariffs.
Main Benefits: Tax on cement (28%→18%), insurance (18%→0%), life-saving medicines, and essential commodities was significantly reduced.
The major issue of inverted duty structure in critical sectors like textiles and fertilizers was resolved.
States' Concerns: Revenue loss for states remains a major concern due to these changes. The Council did not accept the demand for a new cess to compensate for the losses. States will now have to rely on the recommendations of the 16th Finance Commission.
While many industries welcomed this change, some sectors like textiles (18% tax on high-value clothing) and MSME (18% tax on labor charges) expressed concerns.
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