GST 2.0: SBI Research Sees Minimal Tax Loss, Thanks To Spending Pickup

The 56th meeting of the Goods and Services Tax Council unveiled GST 2.0, a sweeping rationalisation of the indirect tax system. The move slashed the four-tier rate structure into a simpler two-rate regime of a 18% standard rate and 5% merit rate, with a special 40% de-merit rate for select goods.

The government has pegged the net hit on revenue at Rs 48,000 crore on an annualised basis. But SBI Research estimates the revenue loss will be a fraction of that at just about Rs 3,700–3,800 crore, citing trend growth and a consumption boost.

"This has no impact on the fiscal deficit," the note said, highlighting that past rate cuts had, in fact, boosted collections by nearly Rs 1 lakh crore.

With GST on nearly 295 essential items cut from 12% to 5% or nil, SBI projects a 25–30-basis-point drop in food inflation and another 40–45 bps reduction from services, assuming partial pass-through, as per the report. Overall, SBI Research sees CPI inflation easing by 65–75 bps over the next fiscal.

SBI Research believes banks stand to benefit directly from GST exemptions and lower rates. Lower GST on office equipment like air-conditioners and monitors is expected to cut operating expenses and improve profitability.

A major reform is the removal of GST on individual health and life insurance premiums (including reinsurance). Earlier, policies attracted 18% GST on protection products, along with levies on ULIP fund charges. The change will make premiums cheaper, improve affordability, and expand insurance penetration, says the firm, allowing households to either increase coverage or buy policies for the first time.

Out of 453 goods reviewed, 413 items saw a rate cut, with food, health and textiles seeing the largest relief. Almost 295 items now fall under the 5% or nil category, down from 12%. Everyday items such as processed foods, textiles, footwear, and health products are set to become more affordable, supporting consumption especially among middle-income households.

Beyond insurance, medical items such as glucometers and test strips now attract just 5% GST. The brokerage says this could bring down out-of-pocket healthcare costs for patients, while also supporting preventive health measures.

Large cuts in textile rates — shifting many items from 12% to 5% — could give a significant boost to India's labour-intensive apparel sector. Lower compliance costs and cheaper inputs are expected to support MSMEs and exports.

• Renewable Energy: GST on several inputs has been slashed from 12% to 5%, potentially lowering project costs and encouraging adoption.

• Hospitality & Services: Rate cuts for hotels and leisure services are expected to aid domestic tourism and discretionary spending.

• Construction & Infrastructure: Reduced GST on materials like wood and paper could help bring down project costs.

SBI Research sees consumers and businesses as standing to gain from lower prices and simpler compliance, noting the government's revenue fears may be overstated.