PM DIWALI GIFT: Next-Generation GST Reforms - Your Complete Guide

The Big News: GST 2.0 is Coming

On August 15, 2025, during his Independence Day address from the Red Fort, Prime Minister Narendra Modi made a landmark announcement that he termed a "Double Diwali" gift for the Indian people. The centerpiece of this gift is a comprehensive overhaul of India's Goods and Services Tax (GST) system - the most significant tax reform since GST's original implementation in 2017.

Prime Minister Modi delivers a speech on GST reform at the Red Fort on Independence Day.

What PM Modi Said

"This Diwali, I am going to make it a double Diwali for you. The citizens will receive a big gift on this Diwali... We are bringing next-generation GST reforms. This will reduce the tax burden across the country. This will be a gift ahead of Diwali."

The Prime Minister emphasized that after eight years of GST implementation, it was time for a comprehensive review, which his government has now completed through extensive consultations with states and a high-powered committee.

The Core Reform: From 4 to 2 Tax Slabs

The most revolutionary change involves simplifying India's complex four-tier GST structure (5%, 12%, 18%, 28%) into essentially two main categories:

• Merit Rate: 5% (for essential goods)

• Standard Rate: 18% (for most items)

• Special Rate: 40% (only for luxury/sin goods like tobacco, alcohol, pan masala)

The Mathematics of Relief

According to government sources, the restructuring will deliver massive savings:

• 99% of items currently taxed at 12% will move to the 5% bracket

• 90% of goods in the 28% category will shift to 18%

• Only 5-7 select items will attract the special 40% rate

Three Pillars of Reform

The Finance Ministry outlined the reform strategy based on three key pillars:

1. Structural Reforms: Correcting inverted duty structures and resolving classification disputes

2. Rate Rationalization: Reducing taxes on essential goods and aspirational products

3. Ease of Living: Technology-driven processes, pre-filled returns, and automated refunds

Timeline and Impact

The reforms are targeted for implementation before Diwali 2025, with the GST Council scheduled to meet in September 2025 to finalize the proposals. The Prime Minister promised that "everyday items will become very cheap" and provide "a new boost to the economy".

Who Benefits Most

The reforms are designed to benefit:

• Common citizens through cheaper daily-use items

• MSMEs and small businesses through simplified compliance

• Middle-class families through reduced costs on aspirational goods

• Students and farmers through targeted rate reductions

This announcement represents the most significant tax policy shift in India since the original GST rollout, positioning it as a transformative economic gift for the festive season ahead.