GST 2.0: How India’s bold reform opens doors for Hungarian business

written by Anshuman Gaur, Ambassador of India to Hungary 

Hungary knows the power of tax reform. In 1988, it introduced a nationwide Value Added Tax (VAT), a step that simplified business and paved the way for closer integration with European markets. 

India is now experiencing a similar moment. In 2017, under the leadership of Prime Minister Narendra Modi, it introduced the Goods and Services Tax (GST), which replaced a tangle of state level taxes with one unified system across 29 states. For a nation of 1.4 billion people, it was revolutionary. Now, India has launched GST 2.0—a new generation of reforms aimed at making the tax system simpler, more transparent, and fully digital. This is more than an Indian domestic reform. It is an opportunity for Europe, and especially for Hungary, to deepen trade ties with one of the world’s fastest-growing economies. 

What’s New in GST 2.0? 

The reforms are three pronged, encompassing structural changes, rate rationalisation and ease of living and doing business. The structural changes include addressing long-standing issues like the inverted duty structure and resolving classification disputes. Rate rationalisation involves moving from a complicated multi-slab system to a simplified two-rate structure for the vast majority of goods and services; and ease of living and doing business involves implementing process reforms to make compliance simpler, faster, and more predictable for businesses, especially Medium, Small and Micro Enterprises (MSMEs) and exporters. 

A wide range of daily-use items have become cheaper, effectively putting more money in the hands of consumers. This includes food items, personal care goods, household goods, agri inputs, health products, and renewable energy equipment. The shift to a two-slab system of 5% and 18%, removing the earlier 12% and 28% rates, will make taxation more transparent and easier to follow. At the same time, a 40% slab for luxury goods such as tobacco, aerated drinks, luxury cars, yachts, and private aircraft ensures fairness and revenue balance. In parallel, registration and return filing have been simplified, refunds made faster, and compliance costs reduced, easing the burden on businesses, especially Medium, Small and Micro Enterprises (MSMEs) and startups. The support for small businesses helps them join global value chains while the lower taxes on green energy align with Europe’s sustainability priorities. In short, GST 2.0 makes India a more predictable and business-friendly partner. 

Why Europe Should Care? 

The European Union is India’s second-largest trading partner, accounting for trade in goods worth €120 billion in 2024, or 11.5% of India’s total trade. India is the EU’s 9th largest trading partner, accounting for 2.4% of EU’s total trade in goods in 2024. The India-EU Trade in services amounted to €59.7 billion in 2023. India and the EU are working with sincerity and commitment to finalize, at an early date, a comprehensive and balanced Free Trade Agreement that will benefit businesses and consumers on both sides. Yet many European companies—particularly small and medium-sized ones—have found India’s tax regulations challenging.