The recent GST reforms seek to catalyze a behavioural change, along with the simplification of the rate structure and stimulation of consumption. The key decisions are made to exempt or reduce GST on a variety of products to encourage higher-quality goods in India. The new GST rates will be in power from September 22, 2025. Hence, this article delves into the key changes made in the new GST 2.0 calculus and their impacts on the various industries.
What are the Key Changes in the New GST Reform?
- The government has decided to exempt GST from ultra-high temperature milk, all types of Indian bread, including roti and parotta, and paneer, to market Indian cottage cheese.
- There is a reduction of GST rates on consumer electronics like air conditioners, televisions, washing machines, and small appliances to increase consumption.
- The government aims to increase the purchase of individual life and health insurance by exempting them from GST. However, the 18% GST on institutional group insurance policies is retained.
What are the Impacts of Changes on Different Sectors?
The new GST reform may influence a broader consumption transition within various sectors. For example, the GST 2.0 calculus suggests:
Food & Beverage Sector
- The GST rate on different food categories, like popcorn and other packaged items like namkeens, chocolates, and sauces, is reduced to 5%
- Packaged paneer is exempted from the new GST rate to promote the small-scale production
- The GST rate for packaged food has been reduced to reflect better quality and packaging standards.
Automobile Sector
- GST is reduced from 43-48% to 18% on small vehicles like cars and motorcycles with engine capacity under particular limits. The aim is to augment affordability and bolster sales in a previously flagging market.
- While GST is increased for large engine capacity motorcycles to align them with the sin goods, because of the growing environmental issues
Consumer Electronics
- GST rates are reduced for consumer electronics like Air conditioners and televisions from 28% to 18% to increase affordability and accessibility
- Significant growth in the consumption of low-energy and connected appliances
Construction Sector
- GST is reduced on construction materials such as cement, aiming at reducing construction expenses by up to 5%. This is a big relief for developers, mainly in the affordable housing segment.
GST 2.0 Calculus- From 12 or 18% to 5% or Nil
| Category | Items | Previous Tax Rate | New Tax Rate |
| Milk products | Condensed milk
Butter Ghee Paneer Cheese |
12% | 5% |
| Staple foods | Malt
Starches Pasta Cornflakes Biscuits Chocolates Cocoa |
12-18% | 5% |
| Sugar and confectionery | Refined sugar
Sugar syrups Confectionery like toffees and candy |
12% | 5% |
| Prep-packaged foods | Namkeens
Bhujia Mixture Chabena |
18% | 5% |
| Packaged drinking water | Natural or artificial mineral waters
Aerated waters |
18% | 5% |
| Other packaged foods | Vegetable oils
Animal fats Edible spreads Sausages Meat preparations Fish products Malt extract-based packaged foods |
18% | 5% |
What are the Behavioural and Economic Impacts?
The new GST reforms may face hesitation at first, mainly among lower and middle-income groups. However, they may encourage a long-term change in the consumption patterns. For example, there is a significant change in customer preferences owing to the introduction of budget-pinch sachet packaging in the FMCG sector. The expected rise in disposal incomes from the concurrent GST revisions may also improve customer sentiment and spending.
Implications of Revised GST on the Festive Season
The government has reduced the tax rates on products like cars, TVs, and cement that may result in higher sales during the festive season in India, i.e., between September to November. The revised GST reduces the tax on air conditioners, dishwashers, and hybrid vehicles, which can boost sales during the festive season. The entry-level and bulk items, such as select appliances, will go down from 28% to 18%. The footwear and clothing market is also expected to see a reduction, from 12% to 5%.
Car manufacturers such as Maruti, Tata, and Toyota, as well as producers of consumer electronics like LG and Sony, will benefit immediately from the application of new rates.
The revised tax on luxury and large vehicles has been set at 40%, down from the ongoing rate of 50%. This can be a big opportunity for Mercedes-Benz, AUDI, and BMW. The GST on EVs is set at 5%, which is a significant relief for car manufacturers like Tata Motors and Mahindra & Mahindra.
GST Breakdowns on Automobiles
The table below summarizes the GST 2.0 calculus- old tax rates and new tax rates on different types of vehicles.
| Categories | Old rates | New rates |
| Small cars | 28% | 18% |
| Motorcycles of 250cc and below | 28% | 18% |
| Motorcycles
Large cars |
40% | 50% |
| Car parts | 18% | |
| EVs | 5% |
Who Will be at a Loss?
Although most of the industries get a boost with the new GST regime, there is an increase from 12% to 18% on the apparel and clothing items that cost over 2500 rupees. This will be detrimental for the international brands like Levi Strauss, Marks and Spencer, and Zara.
The GST on coal increased to 18% from 5%. At the same time, the tax rate on fizzy drinks manufactured by PepsiCo and Coca-Cola remains at 40%. Tobacco products, such as cigarettes, are also subject to a 40% GST.
Sin items like pan masala, chewing tobacco, cigarettes, guthka, and bidi will be under the ongoing high GST rates and compensation cess. After clearing the cess-linked debts, these categories can fall under the 40% GST category. Furthermore, the valuation of such items will be changed to Retail Sale Price rather than the transaction value. This supports the strengthening of compliance.
The items, including aerated waters, containing sugar or sweetening elements, will see a rise in GST from 28% to 40%. Restaurants running within the particular premises may no longer claim 18% GST with the ITC option, which fills a greater loophole.
Summing Up
The revised GST rate is a strategic shift to usher in a consumption-driven economic boost. The aim is to strike a balance between affordability and quality, and encourage shifts toward improved consumption standards across various sectors in India. By understanding these GST changes, you can make informed decisions whether you want to invest in cars, appliances or buy packaged foods.
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