GST 2.0: What it means for your IT budget

India just hit a reset button on its GST tax system.

At its 56th meeting in September 2025, the GST council rolled out a sweeping overhaul of India's indirect tax regime. Four tax slabs: 5%, 12%, 18%, and 28%, have now been consolidated into just two standard rates: 5% and 18% plus a 40% for luxury and harmful goods. This change is being described as GST 2.0 and not without reason.

The Indian government expects“GST 2.0” to spur consumption and simplify compliance. As Zoho’s Sridhar Vembu puts it, “cutting taxes to stimulate domestic demand is exactly the right mix” for growth.

So for CIOs and CFOs, the question is, how will this tax rationalization affect their IT spend?

Decoding the GST impact on IT spend: what’s changed, what hasn’t

Whether you’re an enterprise leader tracking IT budgets or a policymaker focused on macro indicators, you will find this new GST structure impact IT budgets in the follwoing areas:

1. Hardware procurement: Mostly status quo but with some cost relief for edge cases

Most core IT hardware, such as servers, storage arrays, and workstations continue at 18% . However, there’s good news in the margins:

• Reduced CapEx for peripheral devices: Electronics such as monitors, projectors, TVs, and air conditioners have dropped from 28% to 18%, trimming CAPEX for display and physical infrastructure upgrades.
• Running on-prem datacenters has an indirect win: Reduced GST on powerintensive devices and specialized data center components such as silicon wafers and surveillance hardware, helps businesses cut costs for IT infrastructure.
• Green IT investments is now cost-effective: Energy-efficient systems, solar power generators, HVAC, and backup power gear now come under 5% GST, reducing operational technology and green investment costs.

In short, firms running large on-premise data centers may save a few percentage points on power or solar investments but pay full tax on their core data hardware.

2. Software licensing and cloud: No rate cut, but input tax credit remains

Commercial software, SaaS, and cloud offerings (OIDAR services) remain taxed at 18% preserving fiscal neutrality but offering no cost relief. But businesses can still claim input credits on GST paid. This covers B2Bs, enterprise, and capital-intensive services like IT, telecom, and cloud infrastructure

Also, cloud storage, data backup, and business-continuity services are classified as technical services and now might be taxed at 18% which is upwards from 12%.

For budgeting, this means software costs remain up ~18% over the base price, as before. Businesses need to reevaluate their cloud computing strategy to evaluate how their cloud services across geographies are going to be billed moving forward.

3. Outsourced IT services: Might have become costlier

While the revised tax rules explicitly lowered GST on many manufacturing-linked job work or outsourced production services to 5%, generic outsourcing and technical services were not specifically listed.

In effect, now most IT outsourcing services such as managed services, consulting, and system integration taxes have increased from 12% to 18%, making general outsourcing costlier.

Practically, this means:

• Business-continuity solutions budgeted by CIOs will see no GST benefit.
• IT budget planning should assume an 18% levy which is recoverable via ITC.
• With no direct savings, categorical clarity will help reduce classification disputes during audits.

4. Billing systems & ITC flow: Two-rate system adds clarity and mishandling it can be costly

Perhaps the most important change for services is the new two-rate service framework:

• B2B services: Taxed at 18% with full ITC. This includes your standard IT services such as IT consulting, maintenance contracts, and software implementation.
• Consumer-facing services: Taxed at 5% without ITC.

For example, an edtech or fintech firm offering B2C subscriptions still collects 18% since it’s an electronic service, but a healthcare aggregator selling direct-to-patient consultations might now charge 5% on the service fee. Companies must audit their service portfolios to apply the correct slab.

It is critical to understand which services a business buys vs. sells, and which side of the B2B/B2C split the business is on. Rate compliance is now clearer but mishandling it could cost ITC.

Others:

• Expect continued 18% billing on networking, such as ISP charges and leased lines.
• Critical business services like disaster recover and business continuity (DR/BC) and security were unaffected in rate, so expect continued 18% GST that is recoverable with ITC

Industry-specific effects: How GST 2.0 will impact IT budgets across sectors

While the changes are broadly positive, each sector will see unique ripple effects on ITrelated costs, compliance, and budget priorities. Let’s break it down by industry.

1. BFSI: Relief for customers, cost pressure for insurers, and gains for fintech

• Insurance: Life and health premiums are GST-exempt, reducing consumer costs. However, insurers lose ITC on backend tech and operations, increasing net costs.
• Exports and fintech: Removal of intermediary ambiguity helps export arms and fintech service lines by boosting ITC recovery and operational cash flow.
• Internal IT: Core banking systems, cloud migrations, cybersecurity continue at 18% GST which is change neutral and stable.

Takeaway:

• large financial services firms will feel a slight impact on their IT bills, but their international consulting and tech-service arms may save tax and litigation costs under the new rule.
• Smaller finance firms should update their billing templates: insurance products now carry 0% GST, whereas services like wealth advisory and transaction fees remain at 18%.

2. Manufacturing: Lower input taxes free up capital for smart factory tech

The manufacturing sector non-IT CapEx in machinery, renewables, and textile inputs see GST cut to 5%.

With this lower GST, manufacturers now have more room to invest in Industry 4.0 innovations like IoT, automation, and ERP system upgrades, without raising their tax burden. But for IT, manufacturing companies will continue to pay 18% on enterprise software, industrial IT services, and networking.

Takeaway: Input costs fall, giving more headroom for tech spend, but no direct cuts on core IT goods/services.

3. Retail and FMCG: Demand set to rise but IT budget stays taxed at 18%

For retailers and consumer brands, GST 2.0 directly boost demand for their goods:

• Cheaper consumer goods: This will likely lead to higher demand and greater footfall which will create a natural justification for higher IT investment in areas like e-commerce platforms, AI-powered analytics, and inventory management.
• Store and ecommerce site OpEX: POS hardware, ERP software, Wi-FI, and logistics services will still attract 18% GST, with only a small benefit for bar-code scanners, monitors, and certain shop equipment which are now taxed at 18% instead of 28%.
• GST compliance is with delivery platforms: Small delivery partners offload GST compliance to big aggregators thereby simplifying accounting for large retailers using these services.

Takeaway: Retailers should prepare for higher volumes and revenue, but should continue budgeting for IT services at the standard 18% GST.

4. Health care: Major cost relief on equipment, but IT systems still fully taxed

Hospitals and clinics gain substantial cost relief with most pharmaceuticals and medical devices are now 5% or 0%. This cost relief in pharmaceuticals and devices will free up budgetary headroom for investment in digital health systems like EMRs, telemedicine platforms, and IT security.

However, healthcare IT budgets for software for patient records, data storage, and remote monitoring systems will remain at 18% with ITC.

Takeaway: CIOs in hospitals still need to plan for business-critical IT services to still carry the same tax burden.

5. Technology and telecom: Export rules and compliance get a boost

The Indian tech sector sees a mixed bag of impacts:

• The removal of the intermediary rule: This is a huge win for IT services and BPO firms. Indian firms can now treat cross-border support and marketing services as export services, unlocking ITC recovery and improving working capital.
• Electronics under lower tax rate: Some like monitors and servers may now come with lower tax rates, though the 18% GST remains on core cloud services, telecom bandwidth, and IT hardware.

Takeaway:

• Large tech firms: Simplified tax structure for global operations and clarified export rules will ease compliance and improve cash flow.
• Smaller startups: The new simplified GST structure is more of a compliance advantage, making registration easier and minimizing disputes over classification.

Our advice for IT leaders

The new GST the reform delivers capital relief, clarity on exports, and compliance simplification. Industries such as manufacturing and healthcare with high physical capex gain budgetary headroom to invest in tech, whereas service-heavy sectors such as tech and BFSI gain through ITC and export rule fixes.

In every industry, CFOs and CIOs should re-align their projections: re-run procurement and project budgets with the new GST rates, update invoicing systems, and seize any cost savings on tax-cut items. Larger firms will leverage improved input credits and export status, while smaller firms will benefit from a simpler regime.

As Sridhar Vembu emphasizes, this “GST 2.0” is intended to put more disposable income in consumers’ hands and encourage domestic investment. With careful planning, IT leaders can turn the GST overhaul into an opportunity by reallocating savings to strategic digital initiatives, and ensuring compliance while driving growth.