Breaking: GST Tweaks Shake Up Market & Consumer Prices in India

In a landmark move, the GST Council has approved a sweeping tax overhaul that simplifies India’s Goods and Services Tax (GST) system. The old, complicated four-slab structure of 5%, 12%, 18%, 28% will soon be history. Taking its place is a streamlined two-slab set up: 5% for essential goods and services, 18% for most others, and a hefty 40% rate reserved for sin and luxury products.

Rolling out just before Diwali on September 22, 2025, this reform is expected to make everyday essentials more affordable, encourage consumer spending and make life easier for businesses struggling with complex tax rates.

Will this overhaul really boost growth and simplify compliance? In this article, we break down what’s changing, who stands to gain or lose, and why GST 2.0 could reshape India’s economic landscape.

Decoding the Changes

Here is a detailed insight into what has changed under GST 2.0:

Personal Care Items

The GST Council reduced the tax rate on personal care items such as shampoo, toothpaste, hair oil and dental floss from 18% to 5% effective September 22, 2025. This 13-percentage-point reduction is expected to lower retail prices by approximately 11% to 13%, assuming full pass-through.

Companies like Hindustan Unilever, Dabur and Godrej Consumer Products are likely to benefit from higher volume growth, especially during the festive season. The move aligns with the government’s strategy to boost domestic consumption.

The Indian beauty and personal care market, currently valued at $21 billion, is projected to reach $34 billion by 2028, driven by e-commerce growth and premiumisation.

Health and Life Insurance

Health and life insurance premiums have been made GST-exempt, down from the earlier 18% rate. This exemption is expected to reduce annual premium costs by up to ₹1,800 for a ₹10,000 policy, improving affordability and penetration in Tier 2 and Tier 3 cities. Insurers such as HDFC Life, ICICI Prudential and SBI Life are expected to see a rise in policy volumes, particularly among first-time buyers. The move supports the government’s broader healthcare inclusion agenda and complements the Ayushman Bharat scheme.

Processed Food Items

GST rates on processed food items, including condensed milk, butter, ghee, paneer, cheese, pasta, biscuits, chocolates and dry fruits, have seen GST rates reduced from 12–18% to 5%. This change is expected to lower retail prices by 8% to 12% across categories. FMCG companies such as Nestlé India, Britannia and Amul are likely to benefit from stronger demand, especially in rural markets. The Indian packaged food market, valued at $76.3 billion in 2023, is projected to grow at a CAGR of 9.5% post-reform. The GST cut also addresses inverted duty structures that previously led to refund delays and margin compression for manufacturers.

Consumer Durables

When it comes to consumer durables, products previously taxed at 28% will now attract only 18%, while those under the 12% bracket have been reassigned to either 5% or 18% depending on classification.

Industry estimates suggest price drops of ₹1,500–₹2,500 per unit for air conditioners and up to 6–7% overall for premium appliances. This reform is expected to drive demand, especially for energy-efficient models and improve penetration in underserved markets. Air conditioner adoption in India currently hovers around 9–10%. Television manufacturers anticipate a 20% year-on-year growth, particularly in the smart TV segment, where the GST cut could help formal brands compete against the unorganised sector.

Companies like Voltas, Whirlpool and Havells may benefit from volume expansion, particularly in semi-urban and rural areas.

Consumer durables saw a 72% surge in average monthly spending in FY25 and are expected to expand further in FY26 due to this reform. The move also strengthens the Make in India initiative by improving competitiveness against imported goods.

Cancer and Rare Disease Drugs

GST on 33 cancer and rare-disease drugs has been completely removed, down from the previous 12%, effective September 22, 2025. This exemption is expected to reduce treatment costs by ₹6,000 to ₹12,000 per month for patients, depending on the dosage and type of drug. Pharma companies such as Biocon, Dr. Reddy’s and Cipla may benefit from higher institutional procurement and CSR-linked distribution. The reform also aligns with the National Health Mission’s goal of expanding access to life-saving therapies.

Automobiles

The revised structure introduces a simplified two-slab regime, 18% for small vehicles and 40% for premium ones, replacing the earlier 28% GST plus compensation cess that pushed effective tax rates up to 50% for larger vehicles. This move significantly benefits small petrol, LPG and CNG cars with engine capacities up to 1,200 cc and lengths under 4,000 mm, as well as diesel cars up to 1,500 cc within the same length. Popular models like Maruti Swift, Hyundai i20, Tata Altroz and Renault Kwid are expected to see price drops of ₹40,000–₹60,000.

Entry-level motorcycles under 350 cc, including Hero Splendor and Bajaj Pulsar, will also attract just 18% GST. Meanwhile, mid-size and large cars, such as the Hyundai Creta, Mahindra XUV700 and Toyota Fortuner will face a flat 40% GST, though the removal of cess slightly moderates the overall impact. Listed companies like Maruti Suzuki, Tata Motors, Mahindra & Mahindra and Bajaj Auto are poised to benefit from increased demand in the small vehicle segment, especially during the festive season.

Construction Sector

Cement, previously taxed at a steep 28%, will now attract 18% GST, a move expected to lower input costs across residential, commercial and infrastructure projects. Similarly, marble, granite, sand-lime bricks and stone inlay materials have seen their GST rates slashed from 12% to 5%. Industry leaders estimate this reform could reduce overall construction costs by up to 5%, with developers likely to pass on the savings to homebuyers over time.

The timing is favourable, given the rising momentum in mid-income and premium housing projects. Listed construction and real estate firms such as UltraTech Cement and Shree Cement as well as infrastructure developers like L&T and DLF are expected to benefit from improved margin flexibility and cost competitiveness. Analysts note that while demand for cement is largely inelastic, the rate cut may prompt a shift toward higher-quality materials, enhancing build standards without inflating budgets.

Conclusion

The GST 2.0 reforms mark a turning point for India’s consumption-driven economy, with significant implications for investors and traders. By reducing tax rates across essential and discretionary categories, the reforms aim to boost demand, expand affordability, and improve sectoral profitability. FMCG, consumer durables, insurance, automobiles and construction are poised for volume-led growth, which could trigger strong earnings momentum for listed companies.

Lower input costs and wider affordability in Tier 2 and Tier 3 cities also suggest deeper market penetration. In the near-term, traders may find opportunities from festive demand and the re-rating of consumption-heavy stocks, while long-term investors may benefit from structural growth and improved valuation visibility.

References:

The Economic Times
The Times of India
Press Information Bureau
India Brand Equity Foundation
The Hindustan Times
Blueweave Consulting
NDTV