By H.E. Manish, High Commissioner of India to Republic of Cyprus

GST 2.0 Reforms: India’s Next Step Towards Simplicity and Growth 

The Goods and Services Tax (GST), introduced in India in 2017, was a landmark reform that unified a fragmented system of indirect taxes into a single framework. With direct taxes collecting approximately 55% of the total revenue and already digitized to a significant extent, indirect tax reforms were the focus of the Government of India.

On account of these reforms, over the past eight years, GST has grown into the backbone of India’s indirect tax architecture, enabling transparency, reducing compliance barriers, and creating a common national market. In September 2025, India has undertaken a second generation of reforms – referred to as GST 2.0 – aimed at simplifying the structure, reducing costs for households and businesses, and reinforcing India’s long-term growth trajectory.

For international observers and partners such as Cyprus, these reforms are of particular interest. They demonstrate India’s ability to take difficult policy decisions with broad consensus, provide a signal of predictability to investors, and create a more attractive environment for cross-border trade and investment. 

A Simplified Structure 

One of the most important changes under GST 2.0 is the rationalisation of rates into a two-slab system: 5 percent and 18 percent. The earlier structure, which included four main rates (5, 12, 18, and 28 percent) along with exemptions, often led to disputes and interpretational challenges. The new two-rate framework makes the system easier to understand, reduces ambiguity, and lowers compliance costs. 

Certain categories have been treated distinctly. Essential household goods, many food items, medicines, and educational materials now attract either nil tax or the lowest rate of 5 percent. At the other end of the spectrum, luxury and “sin” goods such as tobacco, aerated drinks, high-end cars, yachts, and private aircraft are taxed at 40 percent, ensuring both fairness and fiscal balance. This dual approach balances relief for households with revenue needs of the government. 

Sectoral Reliefs 

The GST 2.0 reforms are designed with clear sectoral priorities. Each major segment of the economy has seen targeted measures. 

  • Food and Household Goods: Products ranging from soaps and toothpaste to packaged foods such as pasta and chocolates have moved to a 5 percent slab, providing savings to households while increasing demand. Consumer durables like televisions, air conditioners, and dishwashers have been reduced from 28 percent to 18 percent, which is expected to strengthen India’s electronics and electricals manufacturing ecosystem.
  • Housing and Construction: Cement, previously taxed at 28 percent, now attracts 18 percent GST. Other building materials such as granite blocks and sand-lime bricks have moved to 5 percent. These changes reduce construction costs, improve affordability of homes, and support large-scale infrastructure projects.
  • Automobile Industry: Small cars and two-wheelers have seen their GST reduced from 28 percent to 18 percent. With clearer classifications of vehicles and auto parts, compliance disputes are expected to fall, while manufacturing and exports will become more competitive.
  • Agriculture: Farm machinery including tractors, harvesters, and drip irrigation systems has seen GST rates fall from 12 percent to 5 percent. This lowers costs for farmers and supports sustainable agricultural practices. The correction of inverted duty structures in fertilizers and bio-pesticides further strengthens domestic production.
  • Healthcare: Thirty-three life-saving drugs and diagnostic kits are now exempt from GST. Other medicines, including those from alternative treatment systems like Ayurveda, Unani, and Homeopathy systems, have been reduced to 5 percent. Insurance premiums for life and health policies are exempted from GST. These measures improve affordability of healthcare and broaden access.
  • Education and Skills: Items such as exercise books, pencils, crayons, and sharpeners now attract zero GST, reducing costs for students and families. Geometry boxes and related items are taxed at 5 percent.
  • Services: Hotel stays under INR 7,500 per night, gyms, salons, and yoga services now fall in the 5 percent slab. This makes hospitality and wellness services more accessible while providing a boost to tourism-related industries.

Macroeconomic Impact 

The overarching impact of GST 2.0 is expected to be a reduction in inflationary pressures, higher consumption, and stronger growth momentum. Cheaper goods and services increase household savings and disposable income. Lower costs for businesses, particularly in construction, textiles, and handicrafts, improve competitiveness and support exports. 

With higher compliance and more efficient collection, revenues can increase despite lower nominal rates. India has already witnessed such trends: GST collections have doubled between 2021 and 2025. 

Implications for Investors and Global Partners 

For foreign businesses and investors, predictability in taxation is a critical factor. The GST 2.0 reforms deliver clarity, stability, and a more transparent environment. Lower rates on consumer durables, housing, healthcare, and services signal a large domestic market with growing purchasing power. 

These reforms also strengthen India’s export competitiveness. The correction of inverted duty structures in textiles and fertilizers, combined with reduced costs of inputs like cement and auto parts, create opportunities for global supply chain integration. Companies based in Europe and Cyprus can assess new avenues for trade partnerships, outsourcing, or joint ventures in these sectors. 

Relevance for India–Cyprus Economic Relations 

Cyprus and India have a growing economic partnership, with particular strength in financial services, fund management, shipping, and real estate. The GST 2.0 reforms open several avenues of interest for Cypriot businesses. 

First, the reduction of GST on construction materials and housing is expected to accelerate India’s real estate and infrastructure sector, creating opportunities for Cypriot fund managers and investors who are already active in global real estate portfolios. 

Second, the focus on healthcare, wellness, and insurance ties in with Cyprus’s strong medical and tourism sectors. With India’s healthcare costs becoming more affordable and its wellness industry gaining global traction, there is scope for cross-investments and collaborations. 

Third, handicrafts and cultural industries in India have become more competitive with the lower GST rates. This opens up trade possibilities with Cyprus, which has its own tradition of crafts and artisan goods, allowing for exchange and retail linkages. 

Finally, the simplification of the overall GST regime improves India’s investment climate. For Cypriot businesses looking at India not only as a market but also as a base for manufacturing or services, the reforms reduce entry barriers and enhance certainty. 

Looking Ahead 

GST 2.0 must be viewed as part of a broader reform trajectory. India has already built one of the world’s most advanced digital public infrastructures, from unified payments to data empowerment frameworks. Combining this with a simplified tax regime strengthens India’s credentials as a reliable destination for investment and trade. 

For Cyprus, which positions itself as a gateway to the European Union for global businesses, the complementarity is clear. India’s domestic reforms and Cyprus’s strategic geographic and financial role can be aligned to create new opportunities in services, manufacturing, real estate, and cultural industries. 

Conclusion 

The GST 2.0 reforms mark an important step in India’s ongoing journey of economic transformation. They simplify the tax structure, provide relief across multiple sectors, and strengthen investor confidence. For Cyprus, the reforms open new possibilities for engagement with India’s expanding market and reform-oriented economy. 

As India continues to evolve its policies with a focus on transparency, competitiveness, and growth, the India–Cyprus partnership stands to benefit from these positive changes. The reforms of September 2025 demonstrate that India remains committed to stability and predictability – qualities that matter greatly in today’s interconnected global economy. 

H.E. Manish is the High Commissioner of India to the Republic of Cyprus.