NEW-GEN GST – A Revolutionary Approach

Background

Before GST was implemented, the VAT system was being followed in the country. The previous tax structure has been replaced by GST and a number of changes have taken place as a result. Introduced on July 1, 2017, GST a comprehensive indirect tax levy on manufacture, sale and consumption of goods as well as services at the national level replacing all indirect taxes levied earlier on goods and services by states and Central.

Different types of GST introduced by the Indian Government The different types of GST introduced by the Indian government are – Integrated Goods and Services Tax (IGST), State Goods and Services Tax (SGST), Central Goods and Services Tax (CGST), and Union Territory Goods and Services Tax (UTGST).

Dual GST Structure:

CGST: Collected by the Centre

SGST: Collected by States

IGST: Collected by Centre and shared with States, for inter-state and import transactions

UTGST:  Revenue is shared between Central government and Union Territory government

Input Tax Credit mechanism

GST follows a multi-stage collection process with Input Tax Credit mechanism ensuring that tax is levied only on value addition at each stage of the supply chain. This eliminates the cascading effect of taxes that existed under the previous regime, where taxes were levied on already taxed goods.

Any GST-registered person who had availed ITC on inputs/capital goods for supplies that are now wholly exempt must undertake the reversal. If only part of the business became exempt (while other supplies remain taxable), reversal of ITC attributable to the exempt portion – Section 18(4) applies to that exempt segment, and it is required to apportion credit accordingly (using GST apportionment rules under Section 17 and Rule 42 for mixed supplies).

GST under Next- Gen Reform

India’s GST reforms in 2025 focus on simplifying GST slabs.  The shift to a two-slab system of 5% and 18%, removing the earlier 12% and 28% rates, will significantly reduce the burden of taxation and make goods more affordable for consumers. Additionally, the reform includes significant administrative simplifications, such as a faster registration process for low-risk businesses and a simplified refund mechanism for exporters.

GST Reforms Timeline

This GST reform, effective from September 22, 2025, represents the most significant transformation in India’s taxation system since the original GST implementation in 2017.  The primary rate of 5% applies to essential goods and services that form part of common consumption. The standard Rate of 18% covers most other items in the economy. Additionally, a demerit rate of 40% applies exclusively to luxury and sin goods considered non-essential or socially undesirable.

                              A Glimpse of Revised GST Rates

Revised GST rate	Description
0%	Several essentials have been exempted from tax.   Health and life insurance premiums are now exempted from GST.   Several educational stationery products are now exempted from GST. Items like exercise books, graph books, notebooks, globes, erasers, and maps – carry no tax.
5%	A wide range of everyday essentials and business inputs now fall under this category.   Personal care products, including soaps, shampoos, toothpaste, talcum powder, and hair oil etc.   Low-cost household articles and some agri/irrigation inputs to fall under this.
18%	Construction materials, notably cement, Television (above 32 inches) (including LED and LCD TVs), Monitor and projectors, 3-wheeled vehicles etc.
40%	Tobacco, pan masala, aerated drinks, smoking pipes etc.  [other than tobacco leaves], other non-alcoholic bevarages.

Global Alignment

India’s new GST structure brings the country closer to international best practices in indirect taxation. Countries like Australia operate with a single 10% GST rate from the beginning, while Canada uses a 5% federal GST with provincial additions. India’s two-rate system is set for huge change in the future. The next-generation GST reforms signify a revolutionary step balancing   simplicity, fairness and economic growth.  

Benefits

Consumers	Businesses	Economy
Lower tax rate for essential goods and services.	Easier compliance with automated refunds.	Increased consumption drives economic growth
Reduced overall tax burden on consumers	Simplify rate structures, minimise disputes, simplify compliance,	Global alignment boosts economic growth
This will improve affordability, boost consumption.	Smooth tech-based and time-bound registration.	Simple compliance promotes entrepreneurship.

Conclusion The Next-Generation GST reforms represent a bold step towards building a modest and fairer tax architecture, making it easier for the business to operate.  The reduced rates for MSMEs will support entrepreneurship and new venture creation. The lower rates on essentials will encourage consumer spending resulting in boosting demand and making Indian goods more price-competitive in international markets.