GST 2.0 Promises Relief for Households, Boost for MSMEs, and Stronger Formal Economy

New Delhi, Sep 19 – After the recent reshaping of the indirect tax structure in the country and the introduction of GST 2.0, there will be a reshaping of the country’s indirect tax framework that will provide extensive reliefs to households, more support to MSMEs and eventually formalise the economy, as per FICCI’s (Federation of Indian Chambers of Commerce & Industry) anti-smuggling and anti-counterfeiting arm, CASCADE’s report.

Broader Coverage of Essentials

The new regime aims to increase consumption and consumer demand by exempting numerous categories and placing others in a low tax bracket. Under the revamped regime, the share of items taxed at 5 per cent will nearly triple, expanding from 54 consumption categories to 149. For rural households, the share of exempt and merit goods in their consumption basket will rise from 56.3 per cent to 73.5 per cent. For urban families, the expected increase is from 50.5 per cent to 66.2 per cent.

As a result, the effective GST incidence is projected to decline significantly — from 6.03 per cent to 4.27 per cent for rural households and from 6.38 per cent to 4.38 per cent for urban ones. This translates into higher disposable income, which could stimulate discretionary spending across services, retail, and local businesses.

Relief for Businesses and MSMEs

GST 2.0 also addresses concerns of the business community, particularly MSMEs, by rationalising rates to correct distortions caused by the inverted duty structure. Simplified slabs are expected to reduce compliance complexity while lowering costs for smaller enterprises. As per Anil Rajput, the Chairperson of FICCI CASCADE, the introduction of GST was the single-largest tax reform in the country, and GST 2.0 embodies the One Nation One Tax vision of the government.

Revenue Outlook and Compliance Gains

Although the overhaul may lead to a short-term revenue dip, the study notes that higher consumption, better compliance, and wider coverage will compensate over time. The success of GST 1.0 provides precedent, with indirect tax collections nearly doubling from ₹11.78 lakh crore in 2018-19 to ₹22.09 lakh crore in 2024-25. The taxpayer base also grew sharply from 66.5 lakh in 2017 to 1.51 crore in 2025.

Tackling Illicit Markets

High tax rates under GST 1.0 had inadvertently fuelled illicit trade. Between 2017-18 and 2022-23, illicit FMCG markets surged by over 70 per cent, packaged foods by nearly 100 per cent, and the illegal trade of tobacco crossed ₹41,000 crore. These parallel markets hurt government revenues while disproportionately burdening lower and middle-income groups.

GST 2.0’s rationalisation, moderating the standard slab to 18 per cent and shifting essentials into the 5 per cent category, aims to narrow price gaps that encourage smuggling and counterfeiting. This, the report says, will enhance consumer safety, protect legitimate businesses, and reinforce the formal economy.

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