Explained: GST Reforms Coming Soon. How You Will Benefit

India is set to witness major reforms in the Goods and Services Tax (GST) regime this year. These "next-generation" reforms would drop by before Diwali, Prime Minister Narendra Modi promised this morning, assuring a massive reduction in taxes on common-use items. The Centre has now unveiled a three-pillar blueprint for the reforms that has been sent to the Group of Ministers (GoM) for further discussions. The GST Council would take it up in its upcoming meeting.

Let us understand what led to these reforms and how it will benefit the masses:

'Double Diwali'

The GST reform was among the major announcements made by PM Modi during his Independence Day speech from the Red Fort. He billed it is as a "Diwali gift" for the masses that would reduce the tax burden across the country.

GST was rolled out on July 1, 2017. It has completed eight years, and the time has now come to review these changes, he said. A high-powered committee was formed for the review, and the states were consulted too, following which he said the government has come up with a new set of GST reforms.

"This will substantially reduce the taxes on items for the common man. Our MSMEs will benefit hugely. Daily-use items will become cheaper, which will also strengthen our economy," the Prime Minister assured.

The Reforms At A Glance

The reforms are focused on three pillars - structural reforms, rate rationalisation, and ease of living - in line with the government's push to make India "atmanirbhar", or self-reliant, while also aspiring to become the third largest economy in the world.

The first pillar - structural reforms - would include inverted duty structure correction in specific sectors, resolve classification issues, and provide stability and predictability.

The second pillar - rate rationalisation - aims to reduce taxes on items used by the common man as well as aspirational goods. It would ensure a greater rate stability and reduce the tax slabs.

The third pillar - ease of living - will simplify registration of startups, implement pre-filled returns, and ensure a faster refund process.

How It Benefits The Masses

The above measures are anchored in cooperative federalism and would strengthen key economic sectors, stimulate economic activity, and enable sectoral expansion, said the Finance Ministry.

A correction in the inverted duty structure, under structural reforms, would align input and output tax rates, and help in reducing the accumulation of input tax credit and support domestic value addition. Once classification issues are resolved, it would streamline the rate structures, help minimise disputes, and simplify the compliance processes. It would also ensure greater consistency across sectors, the government said.

These reforms also aim to provide long-term clarity on rates and policy direction. This would help in building industry confidence and lead to better business planning.

The rationalisation of tax rates would enhance affordability and boost consumption. The government aims to move towards a simpler regime with two slabs: standard and merit, wherein special rates will be kept only for a few items.

It will benefit all sections of society, especially the common man, women, students, middle class, and farmers, said the Finance Ministry.

The reforms also focus on furthering the ease of doing business in the country. It aims to simplify the registration processes for small businesses and startups. With pre-filled returns, it hopes to reduce manual interventions and eliminate mismatches.

It is also expected to ensure faster and automated processing of refunds for exporters and those with an inverted duty structure.

The Centre has assured that it will make every effort to facilitate early implementation of the reforms. "The government reaffirms its commitment to evolving the GST into a simple, stable, and transparent tax system - one that supports inclusive growth, strengthens the formal economy, and enhances ease of doing business across the country," the government said.