India's GST reforms 2025-growth for all

By Manish Prabhat, Ambassador of India to Denmark, 15.09.2025

India-Denmark ties are based on historical links, common democratic traditions and shared desire for regional, as well as international peace and stability. We have  celebrated the 75th Anniversary of establishment of bilateral relations between the two countries last year. The bilateral trade between the two countries has significantly increased since the establishment of the Green Strategic Partnership set up during the Virtual Summit held on 28 September 2020 between Prime Minister Shri Narendra Modi and Prime Minister of Denmark H. E. Ms. Mette Frederiksen in 2020.

As per latest available data, the total volume of bilateral trade in goods and services between India and Denmark is around US$ 6.1 billion in 2024 as compared to around US$ 5.3 billion in 2023. Indian exports (in goods and services) reached US$ 2.75 billion in 2024 while imports amounted to around US$ 3.3 billion. Similarly the bilateral trade in services reached US$ 4 billion in 2024; of which exports from India were of US$1.7 billion and imports were amounting to US$ 2.3 billion.

While Government of India has been taking all that is required to boost the trade between the two countries, it has become imperative to bring certain reforms in the indirect tax regime specifically in the Goods and Services Tax or GST.

Introduced in 2017, the GST streamlined taxation, boosts export competitiveness, improves ease of doing business, and aligned India with global trade practices. GST strengthened the country’s role in international commerce and attracted more foreign investment by making India a more predictable and transparent trade partner.

Prime Minister Narendra Modi announced that the government of India would bring Next-Generation reforms of the Goods and Services Tax (GST), which will bring down the tax burden on the common man while delivering his address during India's Independence Day on the August 15.

Keeping on that promise, the GST Council approved Next-Gen GST reforms on September 3, bringing in a significantly simplified system with lower tax rates. This lowering of taxes will directly benefit the common man, farmers, MSMEs, women, youth, and middle-class families, while strengthening India's long-term growth.

 Introduced for the first time on July 1, 2017, GST is India's most significant indirect tax reform since Independence. The GST brings multiple central and state taxes into a single, unified system.

This comprehensive reform package, dubbed GST 2.0, will now have a simplified two-slab structure of 5% and 18%. This simplification is coupled with sweeping rate reductions across sectors, with a focus on sectors that affect the common man. The reforms will be effective from September 22. The tax reductions are aimed at benefiting the labour-intensive industries, farmers as well as the agriculture and the health sectors.

To boost affordability for the middle class, taxes have been cut on household essentials like soaps, toothpaste, bread, etc which will range from Nil to 5%. Two-wheelers and small cars would become more affordable with tax cut down from 28% to 18%. Cheaper machinery and lower rates on bio-pesticides will help small farmers reduce costs and encourage sustainable farming practices.

 Lower GST rates on handicrafts will support artisan livelihoods and promote rural economic growth. Reduced rates on medicines and medical devices will improve access to healthcare and support domestic manufacturing in the pharma and medical equipment sectors. Tax has been brought to Nil from previous tax of 12% on 33 life-saving drugs and diagnostic kits.

 The only exceptions will be specified goods namely, cigarettes, chewing tobacco products, unmanufactured tobacco, etc. for which the existing rates of GST and compensation cess will continue to apply and the new rates will be implemented at a later date. A higher rate of 40% will target luxury items like high-end cars, tobacco products, pan masala, and sugary drinks.

Further, through GST 2.0 reforms, the healthcare and insurance sectors gain significantly from complete exemption of individual health and life insurance from GST. This policy change is expected to increase insurance penetration across India, addressing the gaps in financial protection for families.

Easy registration for small and low- risk businesses will benefit also from the ease in filing aided by digitalisation of processes. Digital filing ensures not just ease but also faster refunds. Digital enhancements, such as Al-driven audit systems and real-time tracking, will minimise human intervention and curb evasion.

By boosting consumption, the GST reforms will act as an economic catalyst and are expected to encourage self-reliance and lesser susceptibility to global tariffs. These will empower MSMEs and manufacturers and boost demand driving consumption and manufacturing growth across India.

The adoption of a simplified GST structure and wide-ranging rate reductions marks a new chapter in India's tax journey. The reforms come soon after the announcement of Q1 2025 GDP growth rate of the Indian economy at 7.8%. The GST reforms will bring affordability for citizens and encourage competitiveness for businesses.

This simpler, fairer, and growth-oriented GST framework will further India's inclusive prosperity and economic transformation while reinforcing the nation's pursuit of self-reliance.

Danish companies have taken active interest in India in the recent years. More than 200 Danish companies are present in India and are participating in Indian market opportunities, a market which has a middle-income group population even larger than that of Europe and is the fastest growing major economy in the world. With the next generation of GST reforms, it is hoped that Danish companies would also find them useful and attractive. The Embassy of India, Copenhagen is always ready to take into account suggestion and feedback from Danish companies. Let us work together even more to strengthen India-Denmark Green Strategic Partnership.