GST 2.0 Reforms: Finance Ministry Addresses Profiteering with Price Monitoring on Essential Items

Why in News

Amid apprehensions that businesses might not fully pass on the benefits of recent GST rate reductions to consumers, the Union Finance Ministry has directed its field formations to compile detailed monthly price data on a range of common-use items before and after the new rates take effect on September 22, 2025.

This move follows the GST Council's decision to simplify the tax structure into a two-slab system, aiming to ensure transparency and prevent profiteering as part of the broader GST 2.0 initiative.

Key Points

1. The Revenue Department has instructed principal chief commissioners and chief commissioners of central GST zones to gather commodity-wise price data from field offices and trade associations for the next six months, starting with the first report due by September 30, 2025.
2. The data compilation will focus on fast-moving consumer goods (FMCG), food items, educational products, drugs and medicines, cement, and white goods, including details like brand names and maximum retail prices (MRP) pre- and post-September 22, 2025.
3. Food items under monitoring include condensed milk, butter, cheese, ghee, ultra-high temperature (UHT) milk (now at nil rate), dry fruits, chocolates, biscuits, cookies, cornflakes, soya milk drinks, tomato ketchup, jams, ice cream, cakes, and drinking water bottles, with GST rates reduced to 5% from 12% or 18%.
4. Personal care and hygiene products such as toilet soap bars, hair oil, shampoo, toothbrush, toothpaste, dental floss, talcum powder, face powder, shaving cream, lotion, and aftershave lotion will see rates cut to 5% from 12% or 18%.
5. Educational items like mathematical boxes, erasers, pencil sharpeners, pencils, crayons, notebooks, exercise books, and graph books are included in the price tracking exercise.
6. White goods including air conditioners, dishwashing machines, and television sets have their GST rates lowered to 18% from 28%, and will be monitored for price changes.
7. Additional items for tracking encompass tableware, kitchenware, umbrellas, toys (tricycles, scooters, pedal cars), gauze, bandages, napkins and napkin liners for babies, feeding bottles and nipples, drugs and medicines, thermometers, glucometers, and cement from the construction sector.
8. This initiative aligns with the GST 2.0 framework approved by the 56th GST Council, introducing a simplified two-slab structure of 5% and 18%, along with a 40% special rate for sin goods like tobacco and luxury items, to boost consumption and economic growth.

Explained

Overview of GST 2.0 Reforms

The Goods and Services Tax (GST), introduced in India on July 1, 2017, as a comprehensive indirect tax replacing multiple central and state levies like VAT, excise duty, and service tax, has evolved into GST 2.0 following the 56th GST Council meeting in September 2025. This revamp simplifies the previous four-slab structure (5%, 12%, 18%, and 28%) into primarily two rates: 5% for essentials and 18% for most other goods, with a 40% special rate for demerit or sin goods such as tobacco, aerated drinks, and luxury items. The changes, effective from September 22, 2025—coinciding with the start of Navratri—aim to reduce tax burdens on daily necessities, stimulate consumer spending, and enhance revenue buoyancy, potentially adding 0.6-0.7% to GDP through fiscal stimulus. Exemptions include unbranded food items like bread, milk, and paneer at 0% GST, while services like health insurance may see rate adjustments to make them more affordable.

Anti-Profiteering Mechanism and Historical Context

Profiteering refers to businesses retaining the benefits of tax rate reductions or input tax credits instead of passing them to consumers through lower prices, a concern that prompted the inclusion of Section 171 in the Central GST Act. To address this, the National Anti-Profiteering Authority (NAA) was established in November 2017 as a temporary body to investigate complaints and ensure compliance. Initially set for two years, its tenure was extended multiple times, handling around 704 cases with alleged profiteering amounting to Rs 4,362 crore, mostly in the early years post-GST launch. Since December 1, 2022, these functions have been transferred to the Competition Commission of India (CCI) for streamlined enforcement. The current price monitoring exercise by the Finance Ministry builds on this framework, involving administrative engagement with states and the Central Board of Indirect Taxes and Customs (CBIC) to verify that rate cuts translate into consumer relief.

Items Affected and Rate Reductions

The rate rationalization under GST 2.0 targets everyday essentials to make them more affordable, with significant cuts on food and grocery items now at 5% or nil, expected to benefit low- and middle-income households. For instance, UHT milk is exempt from GST, while items like biscuits, chocolates, and ice cream drop from 18% to 5%. Personal care products, educational supplies, and baby care items also see reductions to 5%, promoting accessibility. White goods and construction materials like cement (reduced to 18%) aim to spur sectors like housing and manufacturing. However, some items like luxury goods may become costlier under the 40% slab, balancing revenue needs. This restructuring is projected to lower overall prices, boost consumption, and generate jobs, aligning with India's goal of becoming a top global economy.

Economic Impact and Broader Significance

GST 2.0 is seen as a landmark in India's tax journey, addressing initial complexities like multiple slabs and compliance burdens that led to distortions and revenue shortfalls in the first eight years. By lowering rates on essentials, it empowers young consumers, enhances dietary access (though critics warn of potential health impacts from cheaper processed foods), and supports economic growth through increased disposable income. Finance Minister Nirmala Sitharaman has stated that these reforms will drive revenue buoyancy and help meet the fiscal deficit target of 4.4%. Prime Minister Narendra Modi has hailed it as a "double dose of support and growth," emphasizing its role in simplifying taxation and fostering self-reliance. Overall, the reforms could stimulate sectors like FMCG and retail, with the price monitoring ensuring accountability amid mixed reactions on revenue implications.

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