GST 2.0 to cost minimal Rs 3,700 cr revenue loss, fiscal deficit unaffected: SBI Research

The State Bank of India (SBI) research report has said that the latest reforms in the Goods and Services Tax (GST) structure will lead to only a minimal revenue loss of Rs 3,700 crore, with no adverse impact on the fiscal deficit.

As per the report, the government has estimated the net fiscal impact of GST rates rationalisation at Rs 48,000 crore on an annualised basis. However, stronger consumption and growth prospects are expected to offset this, keeping the actual loss negligible.

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At the 56th meeting of the GST Council held recently, the existing four-tier structure was replaced with a simplified two-tier system, comprising a standard rate of 18% and a lower slab of 5 per cent, along with a demerit rate of 40% for select goods and services.

SBI noted that the rationalisation will significantly benefit the banking sector through enhanced cost efficiencies. It also highlighted that the effective weighted average GST rate, which was 14.4% at the time of its rollout in 2017, is now expected to fall to 9.5%.

The report further pointed out that essential items, around 295 products, have seen tax rates cut from 12% to 5% or zero. This is likely to ease consumer price inflation (CPI) in the category by 25 to 30 basis points during the current financial year. Overall, CPI inflation is projected to moderate by 65 to 75 basis points over 2026-27 as a result of the rate rationalisation, the report said.

In a sweeping reform that promises to touch every household and business in India, the GST Council has unveiled the most ambitious overhaul of the Goods and Services Tax (GST) since its launch in 2017.

Branded as the “Next-Gen GST,” the new regime collapses the complex multi-slab structure into a simpler two-rate system and slashes taxes across essentials, automobiles, housing, healthcare, education, and services.

The most significant shift comes in the form of a simplified two-slab structure of 5% and 18%, replacing the earlier four-slab system of 5, 12, 18, and 28%. To ensure revenue balance, luxury and ‘sin’ goods including tobacco, pan masala, aerated drinks, high-end cars, yachts, and private aircraft will be taxed at 40%.

The reforms promise sweeping relief to households, businesses, and farmers through wide-ranging tax cuts and a simpler two-rate structure.

Speaking after the 56th GST council meeting, Union Finance Minister Nirmala Sitharaman said, “These reforms have been carried out with a focus on the common man. Every tax on the common man’s daily use items has gone through a rigorous review and in most cases, the rates have come down drastically… Labour intensive industries have been given a good support. Farmers and the agriculture sector, as well as the health sector, will benefit. Key drivers of the economy will be given prominence.”