With the government announcing major cuts in GST rates for various sectors including auto, FMCG and consumer durables, the market is expected to react positively to the decisions that many are calling a ‘historic Diwali gift’, say experts.
They add that the decision of merging rates into 5% and 18% -- while reserving 40% for sin goods -- will benefit many sectors like FMCG, auto, insurance, consumer durables and MSMEs among others ahead of the festive season.
“The new GST regime merges slabs into 5% and 18%, with 40% for luxury goods. Essentials, durables, and insurance see major tax relief. Sectors like FMCG, auto, insurance, and MSMEs will benefit, driving demand, easing compliance, and supporting economic growth ahead of the festive season,” said Ninad Jadhav, Equity Research Analyst, LKP Securities.
Also Read: 'Historic Diwali gift' for common man, students, farmers: How new GST reforms will impact you?
In a similar context, Vineet Gala, Founder at Xylem PMS, said that the overall package is “very positive." "By removing the 12% and 28% slabs, the move reduces ambiguity and aligns India with global best practices,” he said while adding that the sentiment has already turned constructive, with “clear benefits for consumption-driven sectors such as textiles, apparel, footwear and FMCG.”
According to him, lower taxes on footwear and clothing up to Rs 2,500 are expected to spur festive demand, while exemptions for senior citizens’ health insurance and cuts on life-saving drugs strengthen the welfare push.
Adding a note of caution, Rohit Beri, CEO & CIO at ArthAlpha, said while the dual structure of 5% and 18% is a welcome move, “the devil will be in the detail. The 5% slab usually does not allow input tax credit, so in some cases 12% with ITC was better than 5% without it.” On footwear, he highlighted that raising the concessional limit from ₹1,000 to ₹2,500 effectively extends relief to the “mass affluent” category, potentially giving a broader consumption push.
“The council’s assurance of clearing refunds under the inverted duty structure within seven days is another boost. Though businesses will face short-term adjustments around pricing, stock revaluation and compliance, the overall direction is market-friendly, pro-consumption and supportive of long-term growth,” said Gala.
Also Read: Big tax reform: GST slabs reduced to two; hundreds of items set to get cheaper from September 22
Among food items, cheese, butter, ghee, oil, confectionary, chocolates, pasta, pastry, cakes, biscuits, coffee, ice cream, jams, drinking water, fruit juice, and beverages containing milk will see a lower GST from September 22.
Also Read: From soaps to snacks: GST cut to 5% to boost FMCG demand ahead of festive season
Further, GST on several household products has been slashed from higher slabs to just 5%. Hair oil, shampoo, toothpaste, toilet soaps, shaving cream and toothbrushes will now attract 5% down from the earlier 18%.
Vikas Gupta, CEO and Chief Investment Strategist at Omniscience Capital, said the footwear and apparel cuts would have a “double impact” on both demand and supply. “Consumers are likely to benefit from lower prices, driving higher volume demand. Exporters impacted by US tariffs can also redirect some supply to the large domestic market, where even marginal increases in demand will be enough to absorb the pressure,” he said.
He pointed out that India’s domestic market for footwear, at nearly $30 to 35 billion, dwarfs its $300-500 million US exports. “Similarly, textile exports to the US stand at $10 billion, while the domestic market is around $110 billion, making local absorption feasible,” Gupta said while adding that the government’s commitment to fast-tracking refunds would improve liquidity and sentiment.
“It clearly shows determination to mitigate and counter the impact of US tariffs. We should expect more such steps going forward.”
Incidentally, the Confederation of Indian Textile Industry (CITI) has welcomed the government’s decision of aligning the GST on MMF fibre and yarn at 5% from 18% and 12% earlier, respectively.
“It addresses the long-standing blockage of working capital for thousands of spinners and weavers. With over 70-80% of textile and apparel units in India being MSMEs, this reform will directly benefit a large segment of the industry by easing liquidity pressures, enhancing competitiveness,” said Rakesh Mehra, Chairman, CITI.
Also Read: Diwali comes early for auto sector: GST slashed on small cars, 2Ws, 3Ws, CVs
Meanwhile, vehicles have also seen major rationalisation. Petrol, diesel and CNG cars in specified categories, earlier taxed at 28%, will now attract 18%. Three-wheelers, motorcycles up to 350cc and commercial vehicles for goods transport as well will come in the 18% bracket.
Consumer durables will also see noticeable price drops. Air conditioners, televisions above 32 inches (including LED and LCD), monitors, projectors and dishwashers have all been brought down from 28% to 18%.
According to Karthik Mani, Partner - Indirect tax, BDO India, apart from rate rationalisation, the GST Council has also made some important changes in the GST laws to ease the process of obtaining registrations for small businesses supplying through e-commerce platforms and also for quick grant of refunds on provisional basis.
“Another important announcement is commencement of filing appeals before the GSTAT by September and commencement of hearing before the end of the calendar year, which resolves a long-standing demand of the taxpayers,” he said.
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