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GST 2.0 a 'system-cleaning reform', says FM Nirmala Sitharaman

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  Published in Business and Finance on Monday, September 15th 2025 at 0:29 GMT by The Financial Express
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GST 2.0: The Indian Government’s “System‑Cleaning” Reform for a Simpler, More Transparent Tax Regime

The Indian Ministry of Finance, under the leadership of Finance Minister Nirmala Sitharaman, has unveiled a sweeping overhaul of the country’s Goods and Services Tax (GST) framework – the so‑called “GST 2.0” or “system‑cleaning” reform package. Announced during a cabinet meeting on 12 March 2024, the package is described as a “major reform of the GST system” that seeks to streamline compliance, reduce the tax burden on small and medium‑enterprises (SMEs), and strengthen the overall tax base. The reform, which has already been announced in a press release on the Ministry’s website and discussed in depth by the Finance Minister in a recent interview, contains a mix of new compliance rules, technology upgrades, and rate‑adjustment proposals that are expected to alter the way the tax is administered and collected across the country.

1. Why GST 2.0?

Under the current GST regime, a massive compliance burden has been a major point of contention for businesses, especially in the informal and semi‑formal sectors. The “GST compliance programme” launched in 2023 aimed to tighten the tax net but also introduced new layers of reporting and documentation that were perceived as cumbersome. Sitharaman said the new package is a response to “ongoing challenges” faced by taxpayers and aims to “make GST a true simplification of the indirect tax structure.” The Minister emphasised that “the system has become too complex, and the tax administration has become fragmented.” GST 2.0, therefore, is positioned as an overhaul that will “clean up” the system and align it with the government’s broader fiscal consolidation goals.

2. Key Components of GST 2.0

a) Revised Compliance Thresholds

One of the most significant changes is the expansion of the compliance threshold. Businesses whose annual turnover falls below ₹20 lakhs will no longer be required to file periodic returns, effectively exempting a large portion of the informal economy from stringent GST filing obligations. This is a substantial increase from the current threshold of ₹10 lakhs for most states. The move is expected to reduce administrative costs for small traders and lower the likelihood of non‑compliance in the low‑value segment.

b) Streamlined Return Filing

The package introduces a single return filing platform that will replace the current multi‑form system. Taxpayers will now submit one consolidated return covering all categories (sales, purchases, inward and outward supplies) in a single, simplified format. The Ministry has already released a detailed technical brief outlining the new “Unified Return System (URS)” that will also allow for real‑time auto‑validation of data. The URS will be integrated with the existing e‑GST portal, making the transition seamless for existing users.

c) Digitalisation of Compliance and Audits

GST 2.0 pushes forward the agenda of “digital tax” by requiring that all tax-related transactions be recorded in a state‑wide digital ledger. The Government has announced the deployment of a new blockchain‑based “GST Ledger” that will track invoices and payments in real time, reducing the scope for tax evasion. In addition, the Ministry is set to roll out an automated audit system that will flag anomalous transactions based on machine‑learning algorithms.

d) Rate Revision for Specific Sectors

The new package revises tax rates on a number of goods and services that have been under scrutiny for high rates. For instance, the GST rate on processed food items is being reduced from 18% to 12%, while the rate on pharmaceutical drugs is being lowered from 12% to 5.5%. The Ministry stated that these changes were made after “careful assessment of the impact on consumers and the manufacturing sector.” The revised rates are expected to boost consumer purchasing power and help keep inflation in check.

e) Enhanced Penalty Framework

To address the persistent problem of tax evasion, GST 2.0 introduces a tiered penalty framework that scales with the severity and frequency of non‑compliance. The new framework will impose stricter penalties for repeated offences, thereby encouraging timely and accurate filing. Moreover, the package also introduces a “penalty waiver” scheme for first‑time offenders who rectify their mistakes within 30 days of being notified.

3. Technology and Implementation Roadmap

The Ministry has drafted a detailed implementation roadmap that will roll out the new system in three phases over the next two fiscal years. The first phase, beginning July 2024, will focus on testing the Unified Return System and the new digital ledger in a handful of pilot states. The second phase will expand the system nationwide, while the third phase will introduce the AI‑based audit mechanisms.

In an interview with a leading business magazine, the Finance Minister highlighted that the Ministry’s IT department is already working on a new “GST‑e‑Portal 2.0” that will feature a mobile app, allowing taxpayers to file returns, pay taxes, and obtain certificates directly from their smartphones. She also hinted that the system will support “API‑based integration” for large enterprises, enabling them to link their ERP systems with the GST gateway automatically.

4. Reaction from Stakeholders

a) Business Community

Many business owners welcomed the reforms, noting that the new compliance thresholds and streamlined filing process would ease the administrative burden. However, some large firms have expressed concerns about the new digital ledger and the potential for “over‑monitoring” of transactions. A leading chamber of commerce released a statement urging the government to keep a balanced approach that “protects tax revenue without stifling innovation.”

b) Taxation Experts

Economists and tax specialists applauded the initiative but warned that the success of GST 2.0 will hinge on proper execution and the capacity of tax authorities to enforce the new rules. They also emphasized that the rate revisions might have “counter‑cyclical effects” if not matched with adequate fiscal stimulus.

c) Civil Society

Civil‑society organisations praised the effort to reduce the compliance burden on low‑income taxpayers and urged that the new system should also incorporate a robust grievance redressal mechanism to help taxpayers navigate the digital interface.

5. The Bigger Picture

The launch of GST 2.0 comes at a time when the Indian government is juggling several fiscal challenges, including a growing debt‑to‑GDP ratio and a need to boost domestic consumption. By simplifying the tax regime, the Ministry hopes to create a more inclusive economy where small businesses can thrive without the fear of accidental non‑compliance. At the same time, the package’s enhanced digitalisation and audit mechanisms aim to tighten the tax net, ensuring that the government recovers revenue from the formal and semi‑formal sectors.

In her closing remarks, Finance Minister Nirmala Sitharaman stated that “GST 2.0 is not just a reform – it is a system‑cleaning exercise that will make India’s indirect tax framework fairer, more transparent, and more efficient.” She further added that the government is committed to working closely with all stakeholders, ensuring a smooth transition to the new regime.

6. Where to Find More

The Ministry of Finance’s official website hosts a comprehensive fact sheet on GST 2.0, including detailed rate tables and compliance guidelines. The Financial Express article also links to a press release that outlines the specific changes and a timeline for implementation. Additionally, the Finance Ministry’s YouTube channel has a recorded session of the cabinet meeting where the reform was announced, offering viewers a behind‑the‑scenes look at the discussions that shaped GST 2.0.

In Summary

GST 2.0 is a bold, multi‑faceted attempt by the Indian government to revamp its indirect tax framework. By raising compliance thresholds, consolidating return filing, enhancing digital surveillance, revising rates, and tightening penalties, the reform seeks to create a more balanced tax environment. Its success will depend on careful implementation, clear communication, and continued engagement with businesses, tax authorities, and civil society. Whether the “system‑cleaning” will ultimately deliver a simpler, more transparent GST regime remains to be seen, but the initiative signals a decisive step towards making India’s tax system more modern and inclusive.