Synopsis: India’s new GST 2.0 regime comes into effect today with a simplified two-slab system of 5% and 18%, impacting over 375 items. However, petrol and diesel remain outside GST due to their crucial role in revenue generation for both Centre and States.
GST 2.0: A Major Reform
The new Goods and Services Tax (GST) regime, approved by the GST Council earlier this month, has officially rolled out today, September 22. The restructured GST framework has replaced the earlier four-slab system with a simplified two-slab system.
Under this model:
- Most goods and services fall under 5% and 18% tax slabs.
- A 40% rate will apply exclusively to ultra-luxury items, sin goods, and other demerit products.
This sweeping reform covers over 375 items, directly influencing household budgets across the country.
Items Still Outside GST
Despite these changes, certain goods remain outside the purview of GST, including:
- Alcohol for human consumption
- Natural gas
- Petrol and diesel
This exclusion continues to spark debate, especially regarding petrol and diesel, which face some of the highest taxes in India—often over 100% when excise and VAT are combined.
Why Petrol and Diesel Are Not Under GST
Petrol and diesel are among the biggest revenue generators for both the Central and State governments. Several key reasons explain their exclusion:
- High Revenue Dependency – Excise duty (Centre) and VAT (States) on fuels contribute a massive share of government revenues. For many states, fuel taxes account for 25–30% of total tax income.
- Autonomy of States – States currently levy VAT independently on petrol and diesel. Bringing fuels under GST would reduce their power to tax and increase dependence on central allocations.
- Fiscal Constraints – With both Centre and States relying heavily on fuel revenues to fund social welfare schemes, neither is keen on reducing taxes by subsuming them under GST.
- Control Over Pricing – States also use taxation policy as a tool to influence fuel consumption patterns and pricing.
The Road Ahead
While GST 2.0 is expected to simplify taxation and boost compliance, the long-standing demand to include petroleum products under GST remains unresolved. Experts suggest that unless an alternative revenue mechanism is developed, both Centre and States are unlikely to give up such a crucial source of income.
Disclaimer: This article is for informational purposes only. It explains the latest GST reforms and their implications. Readers should refer to official government notifications for detailed and updated guidelines.
