TaxTMI 
TaxTMI 
TaxTMI 
GST reforms - 2.0 are indeed a landmark milestone in the history of Goods and Services Tax (GST) in India and an important foundation for future tax reforms and multi-dimensional economic growth of country, tax revenues and welfare of all stakeholders. It will have a multiplier effect on various sectors and on overall economy. No reforms are complete but always a work in progress. There are still several loose ends and areas for further measures in law and procedures.
The impact of these tax reforms can be summarized by way of the following assertions:
- Tax rate rationalization has resulted in increased consumption and spends and would boost economic growth.
- Key principles on which tax reforms aim are poor and middle class citizens, food / mass consumption of FMCG goods, goods meant for farmers and health care.
- On economic front, while tax rates become more equity and logic based, i.e., essentials with lower rates and luxuries / sin goods taxed at a higher rate, it will check the inflation rate in the country and inflationary burden may be lowered.
- It would also positively impact manufacturing sector in terms of more output, more turnover, more productivity and enhanced top lines and bottom line.
- Increased tax revenue in all forms direct and indirect will be witnessed owning to enhanced commercial and economic activities.
- Recent reforms may also see increased tax revenue from GST and other indirect taxes in near future.
- GST rate reform may also push up India’s ‘make in India’ and result in fostering sustainable economic growth.
- It would also support and boost service sector which facilitates manufacturing sector more particularly, goods transportation and logistics, warehousing and other services.
- Employment generation may get a boost due to increased manufacturing output and productivity – both in skilled and unskilled sector.
- Because of enhanced output, financial services will too get a lift due to increased demand for working capital and capital expansion leading to more needs for banking and finance. Thus banks and NBFC’s will be more in demand.
- Many small industries and SMEs / MSMEs will be benefitted by way of more business orders and prosper. Some units may even get revived and their financial issues sorted. Cash flows will improve.
- GST reforms would also act as a shock absorber to the recent concerns emanating from US tariff distortions.
- It would enhance quality of life of Indian citizens for the reforms in sectors such as health care and issuance which touch human lives directly. While insurance would provide social and economic security, health care reforms would lead to better health of human beings leading to better efficiency and productivity.
- Real estate sector will be benefited by way of reduced rates on key inputs such as cement, marble, sand lime bricks etc bringing down project costs.
- Tax forms may lead to much needed easing of tax incidence and business competitiveness.
- Ease of doing business will get a boost with changes related to registration processes, easy compliances and support measures for exporters.
- Reduced number of tax rate slabs will help reduce litigation and classification woes.
While the rate rationalization exercise has been widely welcomed, there are certain issues being faced by businesses in relation to accumulated input tax credit and creation of new inverted duty structure in cases where input tax is more than the output tax. The accumulated input tax credit would have to be reversed on unsold inventory as on midnight of 21 and 22 September, 2025. Also, in cases where compensation cess has been withdrawn, traders will suffer huge losses as they won’t be able to set off the input cess credit in future. CBIC could have provided some relief in such cases.
The other fillip side one can think of is that such an exercise took our Government eight long years which could have been done in first few years of GST introduction, more so when we had a popular and stable Government at the centre and it required only persuasive management in GST Council. Such a period is too long and has deprived all stakeholders of many opportunities. Still, as it is said, ‘better late than never’ is the satisfaction one can enjoy now.