GST Revision in India: Pros and Cons of the 2025 Overhaul

India’s Goods and Services Tax (GST) has been one of the most ambitious tax reforms in the country’s history. Introduced in 2017, it replaced a patchwork of indirect taxes such as VAT, excise duty, and service tax with a single, unified system. Over the years, GST has undergone several rounds of revision to address industry concerns and improve efficiency.

The September 2025 GST Council meeting marked a significant milestone. The council restructured the slab system—moving from four slabs to a two-tier structure (5% and 18%) with a steep 40% demerit rate for sin and luxury goods. These changes, while intended to simplify the framework and promote economic integration, come with both clear advantages and notable challenges.

The Upside: Benefits of GST Revision

1. Simplified Tax Structure

The shift from four slabs to just two (5% and 18%) reduces complexity, making it easier for businesses and consumers to understand and comply with tax rules. This is a step closer to the “one nation, one tax” vision.

2. Elimination of Cascading Taxes

GST has effectively removed the “tax on tax” effect by enabling full input tax credit set-offs. This reduces the overall tax burden and helps lower final prices for consumers.

3. Boost to Manufacturing and MSMEs

Revisions that fix inverted duty structures are particularly helpful for manufacturers, lowering input costs and enhancing competitiveness. Small businesses also benefit from higher registration thresholds and composition schemes designed to reduce compliance pressures.

4. Lower Prices for Essentials

Many goods that previously attracted 12% or 28% GST—such as household essentials, medicines, and certain automobiles—are now taxed at 5% or 18%, making them more affordable and boosting consumer spending.

5. Transparency and Technology-Driven Compliance

With GST processes being largely online, transparency has increased and opportunities for tax evasion have shrunk. This strengthens the tax base and boosts government revenue.

6. Sector-Specific Gains

Key sectors enjoy targeted benefits. Farming equipment sees reduced rates (5%), smaller cars are taxed at 18%, while larger ones fall under the 40% bracket. Exemptions on essential medicines and reduced rates on items like auto parts and cement support both households and MSMEs.\

7. Economic Growth Potential

By lowering costs and increasing disposable income, the reform is expected to stimulate demand, accelerate GDP growth, and promote inclusive development.

The Catch: Challenges of GST Revision

1. Transitional Hurdles

Businesses must adapt pricing, inventory, and accounting systems to align with the new rates—an exercise that demands time and resources.

2. Compliance Costs

The digital-first tax system requires investment in accounting software and employee training. Smaller firms, in particular, find this an added financial and administrative burden.

3. Short-Term Inflation Risks

While the overall trend may be deflationary, reclassification of certain goods has led to price hikes in some categories, potentially triggering sector-specific inflation.

4. Uneven Impact on SMEs

Not all small businesses gain equally. Some SMEs may face higher tax liabilities than under the pre-GST regime if they are ineligible for simplified schemes.

5. Pressure of Penalties

A stricter compliance framework means non-compliance can lead to penalties. For smaller firms without dedicated tax teams, this is a persistent worry.

6. Costlier Luxury and Sin Goods

Items like high-end cars, tobacco, and alcohol now attract a steep 40% rate. While this aligns with government policy on discouraging such consumption, it dents sales in those sectors.

7. Sectoral Disruptions

Certain industries, such as coal, have seen rate hikes. These sector-specific changes may have downstream effects on related industries and consumers.

Conclusion

The 2025 GST revision reflects India’s continued effort to streamline taxation, promote transparency, and strengthen economic integration. For consumers, it brings lower prices on essentials and more disposable income. For businesses, it offers simplicity and reduced litigation, but at the cost of transitional headaches and compliance pressures.

Like most big reforms, the success of this overhaul will depend on how smoothly the transition is managed. If policymakers remain responsive and industry adapts quickly, GST could well deliver on its promise of creating a simpler, fairer, and growth-friendly tax system for India.