Nine years after its rollout, India’s Goods and Services Tax (GST) has moved decisively beyond its initial implementation challenges into a phase of consolidation and forward-looking reform. Deloitte’s GST@9 Survey, based on insights from 1,096 senior executives across eight industries, reflects growing confidence in the regime and a materially more positive industry perception than in previous years.
The GST 2.0 reforms, introduced in September 2025, were particularly significant for the FMCG and automotive sectors. Passenger vehicles under four metres moved from a 28 per cent rate to 18 per cent, the luxury vehicle bracket was restructured to a flat 40 per cent rate and the 5 per cent concessional rate for electric vehicles was retained. Similarly, GST rates were reduced to 5 per cent for various food products, textile products and other FMCG products. This was one of the most consequential tax interventions since GST was introduced in 2017. The impact was visible almost immediately with sales seeing a strong uplift in the festive quarter.
A simplified rate structure has contributed to greater predictability for businesses, streamlined compliance processes and facilitated efficient pricing decisions across the supply chain. For the Consumer and ER&I sectors, both closely linked with automotive demand chains, the reduction in tax incidence provided relief at a time when affordability remained a key driver of purchasing behaviour.
That said, GST 2.0 has also brought into focus certain issues that may require a second-level review. For the manufacturers of food products and EVs, one of the more immediate concerns is the inverted duty structure (IDS).
The issue is straightforward. While finished goods attract GST at 5 per cent, several inputs, components, input services and capital goods used in manufacturing, are taxed at 18 per cent. This leads to accumulation of input tax credits that cannot be fully utilised against the output tax liability. For manufacturers, this creates working capital blockage and adds to structural cost.
Refunds are currently permitted on goods inputs and components but not on capital goods or input services. For a capital-intensive sector such as EV manufacturing, where battery lines, press shops, assembly equipment and testing infrastructure require substantial investment, this exclusion is not small. It represents a material cost drag that can eventually seep into product pricing. The industry has been seeking an extension of the inverted duty refund formula to cover all input taxes, including input services and capital goods. Streamlining IDS refunds is the top priority for the consumer sector, due to compounding input tax balances from rate rationalisation.
While the reforms have improved tax standardisation and reduced confusion in classification, helping retail distribution become more efficient, further streamlining of the classification framework remains a priority for the ER&I sector. This is particularly relevant for the automotive components industry, which operates across multiple HSN codes and supplies both OEM and aftermarket channels.
As rate boundaries become sharper, classification positions are likely to be scrutinized more from both businesses and tax authorities. Proactive HSN level clarifications from the GST Council would therefore help provide certainty and reduce avoidable disputes. This assumes importance in the backdrop of audit-to-demand conversion which has increased from 14 per cent in 2024 to 28 per cent in 2026.
Cross utilisation of CGST credits across registrations of the same entity has emerged as one of the most preferred working capital measures, with support coming in across sectors. Enabling such flexibility would help businesses unlock credit liquidity and improve capital efficiency without necessarily altering the rate structure.
As GST enters its next decade, the reform agenda is naturally shifting from rate simplification to optimisation of the broader tax ecosystem. GST 2.0 has delivered meaningful progress on rate rationalisation. The next phase should focus on unlocking credit liquidity, addressing structural inefficiencies and providing greater certainty on classification. These measures would strengthen ease of doing business, improve capital efficiency and help ensure that GST continues to support India’s broader growth journey.