GST Reform 2.0 - UPSC Current Affairs 2025

SYLLABUS

GS2: Appointment to various Constitutional posts, powers, functions and responsibilities of various Constitutional Bodies.

GS3: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

The 56th meeting of the GST Council cleared the next-generation reforms under the eight-year-old indirect tax regime.

Simplification of Slab Structure: The GST Council has shifted the GST regime towards a simplified two-rate structure of 5% and 18%, with a special 40% rate applicable strictly to super luxury, sin and demerit goods.
The 40% special rate applies only to select sin and luxury goods like tobacco products, pan masala, aerated drinks, large vehicles, and personal-use aircraft or yachts.
Earlier, there was a multiplicity of slabs – 5%, 12%, 18% and 28%, with sin and demerit goods attracting cess over 28%.
Effective Date of New GST Rates: All the rate changes, except those for tobacco and tobacco-related products, will come into effect from September 22.
GST Dispute Resolution: The GST Appellate Tribunal (GSTAT) will start accepting appeals by the end of September and begin hearings by December.
- The deadline for filing backlog appeals is set for 30th June 2026.
- Its Principal Bench will also function as the National Appellate Authority for Advance Ruling.

The inverted duty structure in the manmade textile sector is being corrected by cutting GST on manmade fibre from 18% to 5% and yarn from 12% to 5%, thus creating a uniform 5% GST across the entire manmade textile chain.
The inverted duty structure regarding fertilizers will also be rectified, with the duty on sulphuric acid, nitric acid and ammonia being reduced from 18% to 5%.

It arises when the GST rate on final goods is lower than that on raw materials or inputs.
This mismatch locks up input tax credits, straining working capital and disrupting cash flow for businesses.

Simplified Tax Structure: A streamlined two-slab structure reduces classification disputes, lowers compliance burden, and improves ease of doing business.
Consumer Welfare: Rationalised rates on essentials translate into lower retail prices, directly reducing the cost of living for households.
Faster Dispute Resolution: The operationalization of the GST Appellate Tribunal will bring predictability, speed up dispute resolution and foster business confidence.
Boost to Economy: Rationalisation of GST reduces input costs, eases working capital pressures for MSMEs, and stimulates household consumption by lowering prices. Together, these measures enhance demand and create momentum for sustained economic growth.

Revenue Uncertainty: Reduction of GST rates on certain sectors (e.g., textiles, fertilizers) may temporarily strain government revenues, challenging fiscal balance until higher compliance and consumption offset losses.
Lack of Tax Transmission to Consumers: Even after rate reductions, businesses may not fully pass on benefits to consumers due to supply chain costs, pricing strategies, or weak enforcement of anti-profiteering rules, limiting relief to end-users.
Dispute Resolution Pressure: With GSTAT tasked to clear pending appeals by June 2026, there is a risk of rushed decisions or administrative bottlenecks affecting timely justice.
Centre–State Revenue Sharing Tensions: States may fear revenue loss under a simplified slab structure, which could reignite demands for higher compensation or special cesses.

The GST Council is a constitutional body constituted under Article 279-A (101st Constitutional Amendment Act, 2016) to oversee the implementation of the Goods and Services Tax.
Members: As per Article 279A (2) of the Constitution, the GST Council shall consist of the following members:
The Union Finance Minister.
The Union Minister of State in charge of Revenue or Finance.
The Minister in charge of Finance or Taxation or any other Minister nominated by each State Government.
Any person nominated by the Governor of the State where there is a proclamation of emergency under Article 356 of the Constitution of India.
Quorum for a GST Council meeting: A meeting of the Council is duly constituted when it is presided over by the Chairperson with at least one-half of the Members of the Council being present.
The GST law mandates GST Council meetings to happen once a quarter.
Decision Making:
The GST Council generally makes decisions by consensus during meetings.
If a vote is needed, the Central Government’s vote counts as one-third of the total votes cast.
All State Governments’ votes combined count as two-thirds of the total votes cast.
A proposal passes if the weighted votes in favour equal or exceed three-fourths of the total votes cast.