How GST 2.0 could reshape the consumer and FMCG sectors

The GST Council, in its 56th meeting held on September 3, 2025, approved a major overhaul of the tax structure to benefit consumers, the middle class and trade. These ‘Next-Generation GST Reforms’ simplify the tax slabs and provide significant rate reductions on essential goods and services, effective September 22, 2025.

The council implemented major reforms by simplifying the tax structure from four slabs (5%, 12%, 18%, and 28%) to primarily two rates: a 5% ‘merit rate’ and an 18% ‘standard rate’. A special 40% rate was also established for certain sin and luxury goods.

GST 2.0: A Simpler Tax Regime

With these amendments, theGST regime has been considerably streamlined into just two basic slabs: 5% for essential and merit goods and services and 18% for standard-rated items. In addition, a 40% ‘demerit’ rate for luxury, sin, and hazardous commodities such as tobacco and sugary drinks.

How GST 2.0 Could Reshape the Consumer and FMCG Sectors

The reform

is poised to significantly boost the Consumer and FMCG sectors by lowering taxes on essential goods. It will make them more affordable and stimulate demand, particularly for mass-market products such as food, personal care, and basic electronics.

Big Relief Coming for Consumers?

For households, the reforms offer tangible relief on everyday purchases through lower and simplified tax rates, particularly on essential food items, personal care products, and household appliances. Consumers will see direct savings as everyday items like food staples, basic household goods, and some essential FMCG products move to lower tax slabs, making them more affordable.

Food staples, basic Fast-Moving Consumer Goods (FMCG), and textiles are expected to see a reduction in tax rates, potentially moving from 12% to 5%. Some daily food items like UHT milk, paneer, and Indian breads now attract zero tax.

On the other hand, cars, electronics, and insurance are expected to see rates drop from 28% to 18%.

The reduction in rates for electronics and automobiles is expected to make bigger purchases lighter on the wallet, potentially encouraging more spending. Meanwhile, services like insurance and healthcare may become more accessible with lower rates.

How could GST 2.0 impact the FMCG sector?

An inverted duty structure occurs when the tax rate on raw materials or inputs is higher than the tax rate on the finished goods. This issue, which affected many industries, including Fast-Moving Consumer Goods (FMCG) in the pre-GST regime, created major problems related to working capital and led to frequent tax refund claims.

Meanwhile, the initial revenue losses from simplifying the tax structure are expected to be offset by increased demand, better compliance, and reduced evasion. The tax cuts on key FMCG products are expected to directly benefit companies by driving higher sales volumes. Simplifying tax structures with fewer slabs can benefit businesses by simplifying invoicing, lowering compliance costs, and minimising classification disputes.

Conclusion

The implementation of a streamlined GST structure and significant rate reductions marks a new chapter in India's tax history. By concentrating on citizen affordability, corporate competitiveness, and compliance transparency, these reforms transform GST from a tax system to a catalyst for inclusive prosperity and economic transformation. The reforms aim to create a simpler, fairer, and growth-oriented framework for both citizens and enterprises.