Don’t just consider the GST 2.0 reforms as a new tax regime; it’s an economic stimulus written into law, with the infrastructure sector as one of the principal beneficiaries, declare Manish Mishra and Shikha Parmar.
On the eve of India’s 79th Independence Day, the country waited for Prime Minister Narendra Modi’s words with the usual anticipation. But this time, there was a promise that stirred the economic imagination of millions; a remarkable GST reform was on
its way.
Barely three weeks later, on September 3, 2025, the 56th GST Council convened. What emerged from that meeting would soon be called nothing short of a turning point: GST 2.0.
Like the second act in a grand play, GST 2.0 seeks to simplify, rationalise, and reset the stage for India’s economic future. Gone is the labyrinth of four tax slabs. In its place, a cleaner two-tier regime has been birthed: 5 per cent for merit goods and services, 18 per cent for standard ones, and a sharp 40 per cent for demerit goods. And in a carefully chosen gesture, these reforms came alive on September 22, just as the country stepped into its vibrant festive season.
The reduced GST rates on major household goods, including white goods and consumer durables, along with the daily need items, are expected to increase the disposable income in the hands of the common man, thereby incentivising savings and boosting demand in the economy.
Therefore, don’t just see it as a new tax policy; it’s an economic stimulus written into law!
Real estate and construction story
If any sector was waiting desperately for relief, it was real estate. Developers, contractors, and customers alike had long complained that rising input costs were squeezing projects dry. Cement—the very backbone of construction—bore a heavy GST burden at 28 per cent, which has now been slashed to 18 per cent.
Marble, granite, travertine, symbols of durability and grandeur, have witnessed a reduced GST rate from 12 per cent to 5 per cent. Even sand-lime bricks and stone inlay work enjoyed a similar reduction.
This isn’t just arithmetic. It is oxygen for an industry gasping under cost escalation and duty inversion with high GST rates on inputs. With every bag of cement and block of marble now cheaper, contractors could bid lower in tenders, margins could improve, and liquidity could finally flow back into stalled projects.
This could eventually help reduce the cost of real estate projects, which have been at an all-time high since the onset of the present decade. The infrastructure sector could also benefit from lower project costs, especially given that most of these projects experience credit blockages or accumulation due to lower or exempted tax on the outward supplies.
Yet, every story has its twist. The GST Council also raised the tax on government works contracts and offshore oil and gas projects from 12 per cent to 18 per cent. The message is clear: while private construction got its booster shot, public projects would need deeper pockets or sharper budget reallocations.
Energy to the fore
India’s pledge to reach net zero by 2070 is not a distant dream; it’s a pressing mandate. GST 2.0 acknowledged this by making renewable devices more affordable. Solar panels, bio-gas plants, and windmills all have seen their GST rates slashed from 12 per cent to 5 per cent.
This is an unmistakable nudge from a dispensation leading the world’s largest energy transition to sustainable energy sources: if you have to go green, do it fast!
But here too lies an irony. Manufacturers of these devices still buy inputs and services that are taxed at a higher rate than the finished product itself. This inverted duty structure threatens to choke working capital for these manufacturers. The GST Council’s promise of provisional refunds—90 per cent sanctioned upfront—seems to be a soothing balm, but businesses know the real challenge would
be in implementation. Therefore, would bureaucratic delays undo the intent? Well, that remains to be seen.
Meanwhile, India’s grid, which is still significantly powered by coal and lignite, had something more to cheer with the subsumption of compensation cess levied at 400 per tonne into the GST rates, which have consequently increased from 5 per cent to 18 per cent. This seems to be a logical step, as the compensation cess seemed to be a bottleneck for the sector, since it disrupted the credit flows in the value chain. However, this does come with a short-term worry for the industry, as they will now have to grapple with the accumulated cess credits to date. We will only learn in due course if these credits vanish like the forgotten Education Cess or Krishi Kalyan Cess levied in the past, or if they survive the transition.
Transportation and rural economy
The automobile sector, which is one of the economic workhorses, has much to celebrate due to wide-ranging rate cuts.
Owning a car has become cheaper due to GST rate cuts across the segment. While the GST rate for small cars has been reduced to
18 per cent from the erstwhile 29 per cent for petrol cars and 31 per cent for diesel cars, the luxury vehicle segment has benefited from a reduction in GST rate to 28 per cent, from the previous 45 per cent to 50 per cent. Both segments have seen the subsumption of compensation cess into the GST rates.
In addition, motor vehicles used for transportation of goods as well as passengers have seen a rate cut from 28 per cent to
18 per cent, thereby bringing an expected reduction in transportation and logistics costs.
Automobile parts will now be taxed at 18 per cent, instead of earlier 28 per cent, whereas parts of tractors will now be taxed at 5 per cent.
Aviation, however, split its audience. Economy-class flyers were relieved to see their 5 per cent rate untouched, keeping low-cost travel viable. But premium travellers—business and first-class flyers—saw the GST rate increase from 12 per cent to 18 per cent. While the airlines are worried that this could dent the demand for high-margin tickets, thereby eroding profitability, the categorisation seems intentional: essential mobility would stay affordable, but luxury would cost more.
Meanwhile, inland goods transportation, either through road or rail or multi-modal means, will have to navigate a two-slab structure, one at a lower rate of 5 per cent without input tax credits or at an increased rate of 18 per cent with input tax credits being available to the transporter.
This may potentially increase the input costs for the industry.
Agricultural sector gets a boost given the proposed reduction in the rates from 12 per cent to 5 per cent on tractors, machinery used for soil preparation and cultivation, harvesting or threshing machinery, including straw or fodder balers, grass or hay mowers and composting machines.
The above, coupled with a higher disposable income for the rural population due to an across-the-board rate cut, is expected to boost the output and increase consumption, thereby pushing up consumption in the economy.
Anti-profiteering: government is watching
But does the government propose to deliver on these historic reforms? After all, every rate cut carries an unspoken rider: the benefit must reach the consumer. GST 2.0 has only sharpened this expectation. Industries cannot simply pocket the savings; they must reduce prices. For businesses, this means recalibrating contracts, renegotiating vendor terms, and preparing for audits that would test whether the cuts really trickled down.
While the challenge seems to be easier for the more expensive items such as white goods and automobiles—where effecting a price cut is much easier and feasible—it could be complex for several FMCG products, which are volume-driven with a lower per unit price.
GST 2.0 isn’t just about numbers; it promises the institutional backbone businesses have long demanded. Among the most anticipated reforms is the introduction of provisional refunds of 90 per cent for inverted duty and zero-rated supplies, effective from November 1. This measure could significantly ease liquidity constraints for manufacturers and exporters. Equally pivotal is the operationalisation of the Goods and Services Tax Appellate Tribunal (GSTAT). Appeals may be filed from September, with hearings commencing in December. For years, taxpayers have navigated disputes without a second appellate forum; the GSTAT now offers consistency, predictability, and closure.
For businesses, the countdown to September 22 felt like the ticking of a clock before a grand unveiling. Now, they must reassess contracts and delivery schedules, update enterprise resource planning (ERP) systems to reflect the revised rates, and ensure that benefits are passed on to consumers to avoid anti-profiteering scrutiny. Clear communication with vendors, customers, and stakeholders will be essential, as will close monitoring of how GST 2.0 unfolds in practice.
Thus, the 56th GST Council meeting could be remembered not just as a policy update but as a moment when India rewrote the rules of its tax playbook.
GST 2.0, with its sweeping rate cuts for construction, renewable energy, and transport, signals a government intent on stimulating growth and steering the economy towards sustainability. But its success will depend on swift execution; on refunds being processed quickly, tribunals functioning smoothly, and industries honouring the spirit of anti-profiteering.
In many ways, it is like laying a fresh foundation stone. Strong and promising, yes—but what emerges out of it will depend on how carefully all stakeholders, namely the businesses, administrators, and policymakers, carry the vision forward.
About the author:
Manish Mishra, Partner & Head of Practice, Indirect Tax, and Shikha Parmar, Principal Associate, JSA Advocates & Solicitors. Dhwani Vyas, Associate, JSA Advocates & Solicitors, also contributed to
the article.
GST 2.0: Sectoral Shake-Up in India’s Growth Engine
Impact on infrastructure, energy, transport, and real estate:
Construction Relief: Cement GST cut from 28%-18%, easing input costs for developers
Material Makeover: Marble, granite, and stonework now taxed at 5%, boosting affordability
Real Estate Revival: Lower input costs may reduce project prices and improve liquidity
Renewables Push: Solar panels, windmills, and bio-gas plants now taxed at 5%, down from 12%
Automotive Boost: Small cars taxed at 18% (down from 29-31%), luxury vehicles at 28% (down from 45-50%).
Transport Cost Drop: GST on goods/passenger vehicles cut from 28% to 18%, lowering logistics costs
Aviation Split: Economy fares unchanged at 5%, but business class now taxed at 18%
GST 2.0: Reform Blueprint Businesses Must Navigate
Institutional and operational changes businesses must adapt to:
Liquidity Lifeline: 90% provisional refunds for inverted duty and zero-rated supplies from Nov 1
Tribunal Launch: GSTAT to begin accepting appeals from Sep, hearings from Dec 2025
Contract Recalibration: Businesses must reassess vendor and client agreements for new rates
ERP Overhaul: Enterprises must update systems to reflect revised GST structures
Anti-Profiteering Lens: Firms expected to pass on rate cuts to consumers or face scrutiny
Stakeholder Sync: Clear communication with vendors, customers, and regulators is key
Ground-Level Vigilance: Monitor implementation challenges, especially around refunds and cess credits