Tax reforms strengthen India’s circular economy

Since its introduction in 2017, the Goods and Services Tax (GST), similar to European VAT, has reshaped India’s indirect taxation system by consolidating multiple levies. Within the circular economy, GST applies to activities such as recycling, refurbishing, and waste management. For example, recycled plastics are taxed at 5% while waste management services face 18%. Input Tax Credit (ITC) ensures that businesses can reduce costs, supporting sustainable practices. Refurbished electronics platforms like Cashify are also subject to 1% Tax Collected at Source (TCS), maintaining compliance and transparency.

GST 2.0 reforms boosting sustainability

Launched on September 22, 2025, GST 2.0 reforms simplify taxation with two main slabs, 5% and 18%, alongside a 40% luxury rate. Refurbished electronics have shifted from 28% to 18%, reducing consumer costs. Biodegradable packaging and recycled textiles now enjoy exemptions, encouraging sustainable production. AI-driven pre-filled returns and a seven-day refund window support exporters and circular startups, improving liquidity and reducing administrative hurdles.

Real-world business examples

Recycling companies like Banyan Nation benefit from lower costs under the new framework, making recycled plastics more competitive. Refurbished Apple iPhone and other smartphones sold via Cashify now face 18% GST instead of 28%, potentially lowering consumer prices by up to 10%. Waste management firms such as Saahas Zero Waste gain from streamlined compliance, enabling expansion into rural areas.

Key challenges for businesses

Despite the progress, challenges remain. Limited ITC access due to unregistered suppliers increases costs for recyclers. Ambiguities in product classification, such as refurbished laptops, create legal disputes. The 1% TCS obligation reduces margins for online sellers of recycled goods, while small-scale recyclers still struggle with digital compliance despite pre-filled returns.

Case laws shaping GST policy

Legal precedents continue to refine GST’s role in sustainability. The 2020 Supreme Court ruling in Mohit Minerals Pvt. Ltd. eliminated double taxation on ocean freight, benefiting exporters of recycled goods. Similarly, the 2021 VKC Footsteps India Pvt. Ltd. case improved liquidity for recyclers by enabling refunds for unused ITC in inverted duty structures.

Economic and social impact

The circular economy could generate €9.5 billion annually by 2030 and create 10 million jobs. GST 2.0 will expand the tax base, reduce costs for sustainable products, and make refurbished electronics and biodegradable packaging more affordable. With carbon emissions reductions of up to 20%, India’s Net Zero by 2070 target gains further support. The establishment of the Goods and Services Tax Appellate Tribunal (GSTAT) by December 2025 will also streamline dispute resolution.

Conclusion

GST 2.0 is a major step forward for India’s circular economy. By lowering GST rates for refurbished electronics and recycled goods, simplifying compliance, and supporting exporters, it makes sustainability more financially viable. However, continued reforms are needed to address ITC access, classification disputes, and compliance barriers for smaller businesses. India’s path toward Swachh Bharat and Net Zero will rely heavily on GST’s evolving support for sustainable practices.