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A FICCI CASCADE report on GST 2.0 highlights that the revised structure will reduce household tax incidence, support MSMEs, and encourage formalisation of the economy. The reform increases the number of goods in the 5 per cent bracket from 54 to 149 categories. For rural families, exempt and merit goods in their spending basket will rise to 73.5 per cent, and for urban households to 66.2 per cent. This will leave more disposable income with consumers and reduce incentives for illicit trade. Despite short-term revenue loss, long-term gains through compliance and consumption are expected.
A study by FICCI's Committee Against Smuggling and Counterfeiting Activities Destroying the Economy (CASCADE) has said that GST 2.0 will ease tax pressure on households, improve the operating environment for MSMEs, and speed up the process of economic formalisation. The reform has been presented as a step toward building a simpler and more unified tax structure across the country. Advertisement
According to the report, the number of items taxed at 5 per cent will almost triple, moving from 54 consumption categories to 149. For rural households, exempt and merit goods are set to account for 73.5 per cent of the consumption basket, up from 56.3 per cent earlier. For urban households, this share will rise from 50.5 per cent to 66.2 per cent.
This restructuring will lower the effective GST incidence for rural households from 6.03 per cent to 4.27 per cent, and for urban households from 6.38 per cent to 4.38 per cent. With lower indirect taxes, families are expected to have higher disposable income, which may support additional spending on services, retail, and local businesses.
For enterprises, particularly small and medium-sized ones, GST 2.0 introduces more rationalised tax rates to address the challenges caused by the inverted duty structure. FICCI CASCADE Chairman Anil Rajput noted that the first phase of GST in 2017 had reshaped India's taxation system, and the new version builds on that base with simplified slabs and better efficiency.
The study acknowledges that GST 2.0 could result in a short-term dip in government revenues. However, it adds that this would likely be offset through stronger consumption, better compliance, and broader tax coverage over time.
The report also points out that GST 1.0 played a major role in raising indirect tax collections, which grew from INR 11.78 lakh crore in 2018-19 to INR 22.09 lakh crore in 2024-25. The taxpayer base expanded as well, from 66.5 lakh in 2017 to 1.51 crore in 2025, reflecting greater participation in the formal economy.
At the same time, higher tax rates in GST 1.0 created opportunities for illicit markets. Between 2017-18 and 2022-23, illicit FMCG markets expanded by more than 70 per cent, packaged foods almost doubled, and illicit tobacco trade grew to over INR 41,000 crore. This parallel economy placed pressure on lower and middle-income groups and reduced government revenue.
GST 2.0 seeks to close such gaps by moderating the standard slab to 18 per cent and moving a wide range of essential items into the 5 per cent category. This move is expected to reduce price differences that encourage smuggling and counterfeiting. According to the report, these changes should strengthen consumer safety, protect legal businesses, and support the growth of the formal economy.
Source PTI
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