GST 2.0: What Gets Cheaper, What Gets Costlier and How It Unfolds Before Diwali

In a major reform step, the Goods and Services Tax (GST) Council has approved a significant restructuring of the indirect tax regime. The decision replaces the existing four-tier structure with a simplified framework comprising two slabs—5% and 18%—alongside a steep 40% rate to be applied to sin and luxury goods. The move is designed to reduce complexity, improve compliance, and give a consumption boost ahead of the festive season.

What Gets Cheaper

Items that previously attracted 12% Goods and Services Tax (GST), such as packaged foods, certain toiletries, and household staples, will now fall under the lower 5% bracket. This effectively brings down prices of daily-use essentials and is expected to lift consumer demand, particularly in rural markets where affordability has been a concern.

Products earlier taxed at 28%—such as refrigerators, washing machines, air-conditioners, and small cars—have been shifted into the 18% category. Analysts believe this will improve affordability for middle-class households and could provide a timely lift to consumer durables and automobile sectors during the upcoming festival quarter.

What Gets Costlier

A separate 40% slab has been introduced for sin and luxury goods, including tobacco, pan masala, and other non-essential, high-margin products. The intent is clear: discourage consumption of harmful goods while ensuring higher revenue from categories considered non-priority.

Impact on Economy and Markets

For consumers, the changes translate into reduced costs on essentials and greater incentive to purchase aspirational goods. For businesses, particularly FMCG, consumer durables, and auto manufacturers, the revised rates could drive stronger volume growth and support inventory clearance.

However, there are concerns over the fiscal implications. With a large share of goods moving into lower tax brackets, states may face short-term revenue pressures. Policymakers are betting that higher consumption and better compliance will offset these challenges over time.

Bottomline

The GST Council’s restructuring marks one of the most significant tax policy changes since the introduction of GST in 2017. While consumers stand to benefit immediately, the bigger test lies in balancing revenue requirements with the government’s ambition to stimulate demand and simplify the indirect tax landscape.