 "Why GST reforms have nothing to do with Trump’s tariffs")
It’s a Diwali Dhamaka! On Wednesday (September 3), the Narendra Modi government brought in sweeping changes to the country’s Goods and Services Tax (GST) structure. The GST Council, headed by Finance Minister Nirmala Sitharaman, cleared a two-tier tax structure with rates of five per cent and 18 per cent, along with a new 40 per cent slab for sin and luxury goods. These changes are to come into effect on September 22, ahead of Dussehra.
Hailing the next-generation reforms, Prime Minister Modi said they would be a double dose of support and growth for India. “While the media has dubbed these reforms as GST 2.0, I say it is a double dose of growth and support. It means savings for the ordinary household on one hand, and strength for the nation’s economy on the other,” he said while addressing the National Awardee teachers in Delhi.
He further added that the reforms would benefit almost every section of society. “The GST reforms will benefit the poor, the neo middle-class, middle-class, farmers, women, students, youngsters all alike. Cutting down on the tax will benefit everyone to a great extent. From paneer (cottage cheese) to shampoos and soaps, everything will be very cheap now.”
The change in the GST reforms have been welcomed by one and all. However, there are some questions about the timing — after all, the changes come eight years after GST was first introduced with some pondering if it has to do with US President Donald Trump’s tariff war against the country.
Here’s what we found out.
Old GST out, new GST 2.0 in
On Wednesday, the GST Council convened in the country’s capital to discuss reforms to the GST structure. Following their discussion, Finance Minister Nirmala Sitharaman announced sweeping reforms to the GST structure , which was first introduced in 2017.
The biggest change introduced was that the four slabs — five per cent, 12 per cent, 18 per cent and 28 per cent — have been brought down to two, five per cent and 18 per cent, and a new 40 per cent slab has been introduced.
With this change, common-use items ranging from toothpaste to butter, cheese, condensed milk, pasta, packaged coconut water, nuts, dates and sausages, to air conditioners and TV sets, to smaller cars and bikes, to medical items like gauze, bandages, diagnostic kits will face smaller tax rates.
Hon’ble Prime Minister Shri @narendramodi announced the Next-Generation GST Reforms in his Independence Day address from the ramparts of Red Fort.
— Nirmala Sitharaman Office (@nsitharamanoffc) September 3, 2025
Working on the same principle, the GST Council has approved significant reforms today.
These reforms have a multi-sectoral and… pic.twitter.com/NzvvVScKCF
Speaking on the GST reforms, 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 good support. Farmers and the agriculture sector, as well as the health sector, will benefit. Key drivers of the economy will be given prominence.”
Timing of GST 2.0
The GST reforms have been hailed by politicians, businessmen and the common man. But questions remain as to why the changes have been brought in now, as several opposition leaders and sections of the industry have long demanded GST simplification.
In fact, senior Congress leader P Chidambaram, welcoming the GST rationalisation said it was “eight years too late”. In a post on X, Chidambaram, the former Union finance minister, said the current GST design and rates should not have been introduced in the first place, adding that the opposition had repeatedly warned against these issues for years, but their pleas were ignored.
“The GST rationalisation and the reduction in rates on a range of goods and services are welcome but eight years too late. The current design of GST and the rates prevailing until today ought not to have been introduced in the first place. We have been crying hoarse for the last eight years against the design and rates of GST, but our pleas fell on deaf ears,” he wrote.
He further questioned the timing, pondering if the GST reforms are owing to the existing political and economic conditions in the country.
Others too have questioned if the GST reforms are a result of Donald Trump’s 50 per cent tariffs on Indian products, which includes a secondary tariff of 25 per cent for purchasing Russian oil. Even analysts linked the two, saying that by reforming GST, the Modi government was looking to boost household consumption while exports would face challenges.
Government explains the timing
As an increasing number of people began to ask if the GST reforms were linked to Trump’s tariff war with India, Finance Minister Nirmala Sitharaman clarified that the rationalisation of GST rates was not a response to US tariffs.
“The tariff turmoil is not a matter that influenced the GST reform. Because we’ve been at it now for more than one-and-a-half years. A group of ministers was working on rate rationalisation. Another group of ministers, a bit later, was working on insurance and related matters. And compensation cess was a reality – it is going to end the moment you pay back the loan. None of this has anything to do with the tariffs,” she said at a press conference after the GST Council meeting.
#WATCH 🎥 | FM Nirmala Sitharaman clarifies GST reforms not linked to “tariff turmoil” caused by US President Trump.
— Moneycontrol (@moneycontrolcom) September 3, 2025
“We’ve been working on GST rate rationalisation for 1.5 years… compensation cess ends once loan is repaid. None of this has to do with tariffs.”, says FM. 💬… pic.twitter.com/py0oO2Z8II
Even Sanjeev Sanyal, member of Prime Minister Narendra Modi’s Economic Advisory Council, echoed similar sentiments.
When asked why the changes were coming now, he explained that the government has been refining the GST system over the last eight years. “We have been fixing the GST structure little by little along the way. But the thought began to arise about a year ago that now is the time that has come. It’s stable. People understand what the system is. We now need to go back to first principles and see why something should be at this level and not at that level,” he explained.
When asked if Trump’s tariffs had anything to do with the changes, news agency ANI quoted him as saying, “The fact of the matter is we have been thinking about doing this for quite some time and work on this is going on. So this Trump tariff issue was only a few weeks old, actually, if you think about it last couple of months.”
He added, “You can’t announce a major reform like this without having prepared for a very long period of time. So we have been working on it for a long time. And I’m quite glad this is happening. But I don’t think you should directly correlate it to any external negotiations on tariffs.”
Commerce Minister Piyush Goyal also clarified the timing of the GST reforms. In an interview with News18 when asked about the criticism from the opposition about the reforms coming too late, Goyal said, I think it only demonstrates their ignorance that they have not understood the step-by-step systematic way in which Prime Minister Narendra Modi has made this entire GST over the last eight years a success story which is watched by the whole world.”
#PiyushGoyalToNews18 LIVE: Union minister @PiyushGoyal speaks exclusively to Network18’s group Editor-in-Chief @18RahulJoshi https://t.co/lZaoSNl1A9
— Firstpost (@firstpost) September 4, 2025
In a separate NDTV interview, he noted that the overhaul to the GST structure had nothing to do with the tariffs. He added that certain sectors such as textiles and food products, which were going to be hardest-hit by tariffs and now benefitting from the GST revision was “coincidental”.
“This is a well thought-out and holistic new (tax) regime that has been brought in… it certainly could not have been done (overnight), to time it with a tariff imposed on August 27,” he told the news outlet. “When such a large number of changes are done to rates… rationalisation, simplification of procedures… it is a labour of love of many, many months. Officers and Groups of Ministers from states, the central government… everybody has worked on this.”
What comes next
GST 2.0 will come into effect from September 22 and analysts note that it is likely to set off a consumption spike with the festive season around the corner.
Lower GST rates will also likely have a knock down effect on inflation. Producers are set to pass on the lower GST rates in the form of lower prices. This, in turn, could lower retail prices of hundreds of goods and show up in lower consumer price index (CPI) in the coming months.
All in all, it appears that GST 2.0 will indeed be a Diwali Dhamaka for the country and its economy.
With inputs from agencies
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