From soaps to snacks: GST cut to 5% to boost FMCG demand ahead of festive season

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From shampoos and soaps to ghee, butter, cheese and packaged snacks, a wide range of FMCG products will turn cheaper as GST rates will be cut sharply from September 22. The goods and services tax on several household essentials has been reduced from 12–18 percent to just 5 percent, a move expected to revive demand and give companies such as Hindustan Unilever, ITC Ltd, Britannia and Marico a boost ahead of the peak festive season.

The move comes at a time when urban demand remains subdued but is showing signs of a slow recovery as macros support buying behaviour.

In a major tax reform, the GST Council on Wednesday agreed to cut GST slabs to two: 5% and 18%. The existing 12% and 28% will be eliminated, effectively reducing the prices of several items.

In a late evening media briefing, finance minister Nirmala Sitharaman said that this is not just GST rate rationalisation but a "structural reform" which will ease compliance. She added that rates of most common use items have come down.

"We are closely reviewing the overall impact of these reforms on input and output taxes, and will take a considered decision on price reductions for our family pack namkeens by the end of this month. We believe these reforms will further support an increase in overall consumption across the industry," said  Rishabh Jain, chief financial officer, Bikaji Foods International Limited.

Items such as hair oil, shampoos, soaps, toothpaste, shaving cream, butter, ghee, cheese, dairy spreads, pre-packaged namkeens, bhujia, mixtures, utensils, and even baby feeding bottles and clinical diapers will now attract only 5% GST, making them significantly cheaper for consumers.

"This is not just a technical tax adjustment—it is a landmark step that will boost consumption, ease pressures on trade, and strengthen the supply chain from manufacturers to the last-mile retailer," Dhairyashil Patil, National President, All India Consumer Products Distributors Federation (AICPDF).

"The move to bring almost all FMCG goods into the 5 percent GST slab is especially commendable, as it will make products more affordable, boost consumer demand, and energize the FMCG sector’s contribution to India’s growth story," Patil added.

Analysts see the reforms to have two benefits, one is that essentials and FMCG products will see quicker volume traction, while consumer durables, which are highly price-sensitive, will gain renewed affordability.

Slashing the GST for air conditioners to 18 percent from 28 percent will bring a huge relief for appliance makers like BlueStar, Voltas and Havells as companies were tensed due to delayed purchases by consumers anticipating the cuts.

However, aerated waters, caffeinated beverages and carbonated beverages will attract 40 percent GST,  Sitharaman said during the briefing. The move could weigh on products from companies such as Nestlé, Dabur, Tata Consumer and Reliance Industries.