GST Overhaul Set to Boost Consumption and Foster Economic Growth

The Ministry of Finance has announced a significant rationalisation of the GST structure, aimed at boosting consumption growth. According to the latest Monthly Economic Update, the 56th GST Council meeting ushered in a streamlined two-rate system, effective from September 22, 2025. This includes a Standard Rate of 18%, a Merit Rate of 5%, and a special de-merit rate of 40% for select goods and services. Importantly, this change does not increase the overall tax burden, as it incorporates the earlier compensation cess rate.

The Finance Ministry emphasized that this GST restructuring is the third notable tax reform following corporate and personal income tax changes. Streamlining the GST registration process for small suppliers, especially those using e-commerce platforms, is expected to reduce input costs and enhance liquidity. These measures intend to bolster the 'Make in India' initiative, providing a further thrust to domestic manufacturing sectors.

The ministry further highlighted the favorable economic climate created by these reforms, complemented by initiatives such as RBI's rate cuts and income tax rebates. The revised GST rates are designed to support India's climate objectives by reducing the cost of renewable energy and environmentally-friendly products. Earlier, Finance Minister Nirmala Sitharaman stated these reforms address the aspirations of the middle class, enhancing affordability of daily necessities and spurring rural consumption.

(With inputs from agencies.)