GST Council Unveils Landmark Tax Reforms for FMCG Sector: A Boost for Consumers and Industry

In a landmark move aimed at simplifying India’s GST rate structure and extending benefits to the common man, the GST Council announced sweeping reforms on 3rd September 2025, with a sharp focus on the fast-moving consumer goods (FMCG) sector.

The reforms, hailed as strategic, principled, and citizen-centric, are expected to reduce consumer burden, streamline compliance, and enhance ease of doing business.

At the heart of the reform is a rationalised GST rate structure, transitioning from a four-tier system to a simplified two-tier framework. The new structure comprises a Standard Rate of 18% and Merit Rate of 5%.

Further a De-merit Rate of 40% will be applicable to select sin and luxury goods. These rates will come into effect from 22 September 2025, with the exception of tobacco-related products, which will continue under the existing regime until compensation cess obligations are fully discharged.

Relief for the Food Processing Sector

The food processing industry stands to gain significantly from the reforms. Essential items such as UHT milk, paneer, pizza bread, khakhra, chapati, roti, paratha, and other Indian breads have been exempted from GST entirely. A wide array of products including condensed milk, butter, ghee, cheese, dried fruits, pasta, sauces, fruit juices, and packaged water have seen their GST rates slashed from 12% to 5%.

Products previously taxed at 18% such as chocolates, corn and cereal flakes, cakes, pastries, biscuits, soups, ice cream, and mineral water—have also been repositioned to the 5% slab. However, aerated drinks, carbonated beverages, and caffeinated drinks have been classified as sin goods and will now attract a steep 40% GST rate.

Textile and Consumer Durables Get a Boost

The textile industry has welcomed the reduction of GST from 12% to 5% on apparels priced up to INR 2500, as well as on carpets, towels, shawls, caps, and hats. Apparels priced above INR 2500 will be taxed at the standard 18% rate.

In the consumer durables segment, items such as air conditioners, televisions above 32 inches, and dishwashers have moved from the 28% bracket to 18%. Additionally, tableware and kitchenware made of wood, porcelain, iron, and aluminum, along with solar water heaters, cookers, lanterns, and lamps, have been shifted from 12% to 5%.

Personal Care and Household Essentials

The reforms extend to personal care products, with GST rates reduced from 18% to 5% on talcum powder, hair oil, shampoo, toothpaste, shaving cream, and toilet soap. Items like tooth powder, toothbrushes, cotton and jute handbags, sports gloves, umbrellas, contact lenses, and spectacles have also seen a reduction from 12% to 5%.

Industry Challenges and Next Steps

While the reforms are expected to boost consumer demand and simplify compliance, industry stakeholders have flagged potential challenges. The inverted duty structure may lead to accumulation of input tax credit, and the higher GST rate on sin and luxury goods could dampen sales volumes. Moreover, government incentives linked to net GST paid may see a reduction in quantum.

Industry players are now gearing up for implementation. Key next steps include updating billing systems, MRP restructuring, margin realignment, and compliance with re-stickering norms. There is also a growing call for advocacy on inverted duty refunds, clarity on anti-profiteering provisions, and planning for transitional issues.

 A Step Toward Simplification

The simplified tax slabs 5%, 18%, and 40% are expected to reduce classification disputes and compliance complexity. By making essential goods more affordable and streamlining the tax structure, the reforms mark a significant step toward a more efficient and equitable GST regime.

As the industry prepares for the rollout, consumers can look forward to lower prices on everyday essentials and improved access to quality products, making this reform a win-win for both sides of the economy.