GST 2.0 explained: What India’s new tax regime means for you | K Vaitheeswaran interview

The Federal spoke to K Vaitheeswaran, lawyer and member of the Tamil Nadu government GST advisory committee, about the implications of the proposed GST 2.0 rollout. He explained why the reforms are significant, the benefits for industry and households, and the challenges that still remain in implementation.

What are the key positives and drawbacks of the GST 2.0 rollout?

It is a fantastic step, almost like a mini budget in its scope. The decisions appear calibrated, with all states on board despite some compromises on revenue. The expectation is that lowering certain rates will boost consumption and, in turn, offset revenue losses through higher collections. This reflects deep studies and careful calculations by the GST Council.

Also Read: GST reform | Some gains will be offset by US tariffs: Gaura Sen Gupta

How does the 40 pc tax on luxury and so-called sinful goods work? Will cigarette prices really go up?

Earlier, cigarettes attracted 28 per cent GST plus 22 per cent compensation cess, making the total tax over 50 per cent. Now, the rate is 40 per cent. However, this change is not being implemented immediately. Until the council decides on a date, the existing system of GST plus compensation cess will continue. Once the 40 per cent rate comes in, cess will be removed. The final decision will determine whether there is any real change in prices.

Can you explain how the new rates affect other sectors such as cement, FMCG, and construction?

Cement, long taxed at 28 per cent, has now been brought down to 18 per cent. This is a phenomenal reduction that will benefit the real estate and construction sectors as well as labour. Other construction materials like granite, marble, and wood veneer have also seen cuts, which will reduce costs further. On the other hand, luxury cars, high-end bikes, and carbonated or caffeinated drinks are being moved into the 40 per cent slab as “sin items”.

Also Read: GST reforms are mere tokenism, don't address systemic issues: TN MSMEs

For households, many everyday goods have seen reductions. Products used daily - from toothpaste and soap to cooking essentials - are cheaper. Insurance and health products too have seen GST reductions, with life insurance going to zero. The benefits extend across the spectrum to the common man, middle class, and upper-middle class.

Will these rate cuts actually be passed on to customers?

It is too early for businesses to calculate and announce pricing changes. However, no company can afford to withhold the benefit because customers are informed and expect lower prices. Rate cuts will eventually reflect in retail pricing.

Also Read: Kerala FM warns of huge GST revenue loss, questions Centre’s silence on compensation

The challenge comes in exempted categories like life insurance. With no GST on premiums, but 18 per cent tax on related input services, costs rise and margins shrink. Exempting the output without addressing the inputs creates distortions. Either both should be reduced, or input services should also be exempted.

There are concerns about returns filing and the GST portal. How will GST 2.0 address this?

Currently, returns can be corrected, but there are proposals to freeze them after submission. I have reservations about that. GST credit is complex - what qualifies for one industry may not qualify for another. For example, a car is ineligible for credit for a chartered accountant but qualifies for a car dealer. The portal cannot distinguish such cases automatically. Until the law is simplified, correction facilities must remain.

What about ITC claims for MSMEs and exporters? Will cash flow improve?

Yes. Two important decisions have been taken. First, 90 per cent of refund claims for exports will be automatically released without prior inquiry, based on system-driven profiles. For example, if a company claims Rs 20 lakh, Rs 18 lakh should be credited immediately. Second, the same will apply to inverted duty structure refunds. Verification may happen later, but exporters will get quick cash flow relief. This is a much-needed move, especially with rising tariffs and global competition.

Also Read: GST reform shows how indirect taxes can be made even more indirect

How will these reforms affect state revenues?

Rate cuts like cement’s reduction from 28 per cent to 18 per cent will cause short-term dips in both central and state revenues. However, the expectation is that higher consumption will make up for this loss. This is a calculated gamble. Some argue it should have been done earlier, but perhaps the government waited until GST collections were strong enough to allow rate cuts. Globally, GST rates fall when collections are high, giving governments room for reforms.

Inflation also plays a role. With inflation currently under control, cutting rates should not trigger price spikes but rather stimulate demand. The timing appears deliberate, balancing external pressures with domestic needs.

What aspects of GST 2.0 still need more attention?

While the reforms and simplifications are welcome, there must also be greater certainty in the law. Frequent tinkering to overturn past judgements complicates compliance. Assessments should be reasonable; high-pitched demands only fuel litigation and burden courts.

Also Read: GST reforms split Opposition States: Kerala protests, Tamil Nadu cautious

A coordinated approach between the Centre and states is needed so that the same assessee is not targeted by multiple authorities for different issues. Sharing intelligence and streamlining enforcement would be far more efficient.

Will GST assessments overlap with income tax filings, especially for small businesses and individuals?

For individuals, income tax returns often capture revenue sources unrelated to GST, such as capital gains. Comparing these with GST filings would be meaningless. For businesses with a single PAN, comparisons between balance sheets and GST returns make sense. Discrepancies can raise valid questions. But unnecessary scrutiny only adds to compliance burdens.

(The content above has been transcribed using a fine-tuned AI model. To ensure accuracy, quality, and editorial integrity, we employ a Human-In-The-Loop (HITL) process. While AI assists in creating the initial draft, our experienced editorial team carefully reviews, edits, and refines the content before publication. At The Federal, we combine the efficiency of AI with the expertise of human editors to deliver reliable and insightful journalism.)