How will GST 2.0 reforms support the defence, renewables, and solar sectors?
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Synopsis
India is on the verge of a transformative change in its GST structure, set to benefit the defence, renewable, and industrial machinery sectors. This report explores the potential impacts of the forthcoming GST reforms, focusing on how they can reduce costs and promote growth in these critical areas.
Key Takeaways
- GST overhaul to simplify tax structure.
- Defence and renewable sectors set to gain significantly.
- Reduction in GST on critical inputs to enhance competitiveness.
- Long-term savings for defence imports like drones.
- MSMEs to benefit from lower machinery costs.
New Delhi, Sep 8 (NationPress) A report indicates that India's capital goods sectors, including defence, renewable energy, and industrial machinery, stand to gain significantly from the overhaul of the Goods and Services Tax (GST) framework. This transition from the current four-tier GST system to a simplified two-rate structure of five percent and 18 percent will take effect on September 22, 2025, as per Japan-based brokerage firm Nomura.
According to the report, defence procurement and domestic manufacturing, which are highly impacted by indirect tax frameworks, will see a notable reduction in tax liabilities on essential equipment, components, and subsystems due to the revised GST rates.
The exemption of high-value imports and critical spares from Integrated Goods and Services Tax (IGST) is expected to enhance budgetary efficiency, the report noted.
Additionally, the government has reduced the GST on several advanced defence imports, such as drones, to five percent, leading to long-term savings in lifecycle costs.
The internal rates of return for renewable energy initiatives are poised to improve as the GST on crucial inputs and equipment transitions from a 12 percent bracket to a five percent bracket, as highlighted by Nomura.
The brokerage remarked, "This GST reduction enhances the competitiveness of solar energy against fossil fuels, speeds up the adoption of rooftop solar technologies, and aids India in achieving its renewable energy objectives for 2030."
Furthermore, the decrease in GST from 28 percent to 18 percent is set to provide considerable relief for MSMEs, lowering machinery costs across various sectors and fostering modernization.
The GST rate for spark or compression ignition engines, engine pumps, fuel or lubricant pumps for garages, and other related items has also been reduced to 18 percent. This change will reduce input costs and maintenance expenses for MSMEs in agriculture and logistics.
However, the report also indicated mixed effects on the engineering, procurement, and construction sectors. While affordable housing will benefit from decreased material costs, government infrastructure projects may face increased expenses due to the higher GST rate on earthwork-heavy contracts.
Point of View
I see the upcoming GST reforms as a pivotal moment for India's economic landscape. With a focus on supporting industries like defence and renewables, these changes reflect a commitment to modernization and sustainability. The nation stands to gain significantly from a more efficient tax structure that prioritizes growth and competitiveness.
NationPress
06/10/2025
Frequently Asked Questions
What are the new GST rates for defence and renewable sectors?
The new GST structure will feature a two-rate system with rates set at five percent and 18 percent, effective from September 22, 2025.
How will the GST reforms impact MSMEs?
The reduction in GST from 28 percent to 18 percent will lower machinery costs for MSMEs, promoting modernization and growth.
What benefits will the renewable energy sector see?
Renewable energy projects will benefit from a decrease in GST on critical inputs from 12 percent to five percent, enhancing competitiveness against fossil fuels.
Are there mixed impacts on the construction sector?
Yes, while affordable housing may benefit from lower material costs, government infrastructure projects could face increased costs due to higher GST on certain contracts.
What changes are being made to defence imports?
Several high-tech defence imports, including drones, will see a GST reduction to five percent, leading to long-term savings.
