How Will GST 2.0 Reforms Impact Defence and Renewables?
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Synopsis
Discover how the upcoming GST 2.0 reforms are predicted to transform India's Defence and renewable sectors. With substantial tax reductions, will these changes pave the way for a more competitive and innovative future in these critical industries?
Key Takeaways
- GST 2.0 introduces a streamlined tax structure.
- Significant tax relief for Defence procurement and manufacturing.
- Renewable energy projects will benefit from lower input taxes.
- MSMEs will experience reduced machinery costs.
- Mixed impacts observed in the engineering and construction sectors.
New Delhi, Sep 8 (NationPress) A recent report suggests that India's capital goods sectors, including Defence, renewable energy, and industrial machinery, stand to gain significantly from the upcoming changes to the Goods and Services Tax (GST) framework.
As of September 22, 2025, the existing four-tier GST model will transition to a streamlined two-rate system of five per cent and 18 per cent, according to a report by the Japanese brokerage firm Nomura.
The revision of GST rates is poised to benefit Defence procurement and local manufacturing, which are particularly sensitive to indirect tax alterations, thereby lessening the tax burden on essential equipment, parts, and subsystems.
Moreover, the exemption of high-value imports and vital spare parts from IGST will enhance budget efficiency significantly.
In addition, the government has reduced GST to five per cent for various advanced Defence imports, such as drones, ensuring long-term savings on lifecycle costs.
Renewable energy projects are also set to benefit as the GST on their crucial inputs and equipment drops from 12 per cent to five per cent, according to Nomura.
As noted by the brokerage, this GST reduction not only improves the competitiveness of solar energy against fossil fuels but also hastens the adoption of rooftop solar solutions, aligning with India's renewable energy objectives for 2030.
The decrease in GST from 28 per cent to 18 per cent offers substantial relief for MSMEs, lowering machinery costs across various sectors and promoting modernization.
The GST rate for spark or compression ignition engines, engine pumps, fuel or lubricant pumps for garages, and other related items has been adjusted to 18 per cent. This change is anticipated to reduce both input and maintenance costs for MSMEs in the agriculture and logistics domains.
However, the report highlights mixed repercussions for the engineering, procurement, and construction sector; while affordable housing benefits from lower material costs, government infrastructure projects may face increased expenses due to the higher GST rate on earthwork-heavy contracts.
Point of View
The anticipated GST reforms are a strategic move aimed at bolstering India's critical sectors. By reducing tax burdens, the government is likely to stimulate domestic manufacturing and renewable energy, aligning with India's broader economic goals. This approach reflects a commitment to fostering innovation while ensuring sustainability.
NationPress
08/09/2025
Frequently Asked Questions
What are the upcoming changes to GST in India?
The Goods and Services Tax (GST) structure in India will shift from a four-tier system to a two-rate model of five per cent and 18 per cent starting September 22, 2025.
How will the GST changes affect the Defence sector?
The reductions in GST rates are expected to alleviate the tax burden on Defence procurement and indigenous manufacturing, resulting in lower costs for critical equipment and components.
What benefits do renewable energy projects gain from GST 2.0?
GST on essential inputs for renewable energy projects will decrease from 12 per cent to five per cent, enhancing their competitiveness against fossil fuels and supporting India's renewable energy targets.
Will MSMEs benefit from the GST reforms?
Yes, the reduction in GST from 28 per cent to 18 per cent is anticipated to lower machinery costs for MSMEs, promoting modernization across various sectors.
What is the impact on the engineering and construction sector?
The engineering, procurement, and construction sector may experience mixed effects; affordable housing may benefit from lower material costs, while government infrastructure projects could face higher costs due to increased GST on certain contracts.
