Highlights: GST cut to negate Trump’s tariff; May hit Rs 2 Lakh crore, Experts warn of high revenue strain”

Commerce Minister Piyush Goyal said that the GST cuts will spur demand across sectors. He said that the reduction in the cement price due to GST cuts will give the middle class an opportunity to own a home.

Goyal said that the cheaper farm equipment will help farmers to modernise and improve their productivity. He added that the cheaper small cars and motorbikes will help the aspirational middle class to afford cars and motorbikes.

“At first glance, this appears to be a welcome relief, particularly for middle-class families and senior citizens, who often find health insurance premiums prohibitively expensive. However, a closer examination of the tax mechanics reveals that the outcome may not be as consumer-friendly as it initially seems,” says Dinesh Jotwani, Co-Managing Partner, Jotwani Associates.

Insurance companies will no longer get the benefit of input tax credit. In such a situation, they can pass on their expenses to the customers. The result will be that the insurance premium will not decrease as much as consumers are thinking.

Devarsh Vakil, Head of Prime Research at HDFC Securities, says that the GST reforms represent a paradigm shift toward economic rationality, with rate reductions on essentials like dairy, medicines, and food directly benefiting consumers due to their inelastic nature. He adds that this streamlined two-slab structure prioritises fundamental economic drivers while significantly reducing compliance burdens for businesses.

“Combined with RBI rate cuts, FY26 income tax rebates, and moderating inflation, these reforms create multiple stimuli for consumption and economic growth. The policy demonstrates a transformative commitment to inclusive taxation, moving beyond revenue generation to enhance ease of living and doing business across all citizen segments.”, Vakil says

Pranav Haridasan, MD and CEO, Axis Securities, says, “The government’s move to simplify GST by reducing slabs from four to three is a smart step. Essential and aspirational goods now largely fall under the 5% and 18% brackets, which makes the system simpler and fairer. Unlike income tax cuts that benefit specific sections, GST rationalisation reaches everyone — especially rural households and the middle class. “

“This comes at the right time, as consumption has been muted for several quarters due to inflation and weak demand. By putting more disposable income in people’s hands, GST 2.0 can reignite consumption and set off a multiplier effect across the economy. Some of the key sectors that stand to benefit from this are insurance, FMCG, automobiles, agriculture equipment, cement, consumer durables, apparel, footwear, QSR, and retail.”, Haridasan adds

According to the GST Council’s assessments, the GST rate rationalisation will be fiscally sustainable. Based on the FY24 patterns, the Council estimates that there will be a fiscal impact of Rs 48,000 crore.

JM Financial says that if the government doesn’t absorb the effect through a low capex in FY26, the GST revenue loss due to the revision will eventually stretch India’s fiscal deficit position above the target of 4.4% of GDP in the current fiscal year

JM Financial says that the government is aiming for higher consumption by lowering taxes and leaving more money in the hands of people to spend. As a result, the private consumption in the first quarter of FY26 went up 7 per cent YoY.

JM Financial says that since the announcement of GST rationalisation, “the markets were already positioned in favour of consumption. The report says that an incremental move away from capex-oriented sectors cannot be ruled out.”

The Automotive Component Manufacturers Association of India (ACMA) says that the rationalisation of GST to a uniform 18% across all auto components has been a long-standing recommendation of ACMA. The industry body said that a decisive step will curb the grey market, encourage the use of quality compliant components, ease compliance, and support MSMEs – thereby strengthening the global competitiveness and resilience of India’s USD 80.2 billion auto component industry.

“We also welcome the GST Council’s approval for faster export refund claims through ICEGATE for smaller exporters, which will help clear pending shipping bills and significantly ease liquidity constraints.”, said Shradha Suri Marwah, President, ACMA

“I will urge you all to ensure that the entire benefit of yesterday’s significant GST concessions is passed on to consumers. We will all make it a point to buy India-made products. Swadeshi goods will be promoted and encouraged, generating more domestic demand and investments so that India continues to grow as the fastest-growing economy in the world,” Goyal said while speaking at the Bharat Nutraverse Expo 2025, a day after GST rationalisation was approved by the GST Council.

“Passing on the benefit entirely to consumers may not immediately reflect on your bottom line, but the tremendous boost it will provide to consumption—imagine the greater sales you can aspire to—makes it a win-win for everyone. I hope I am correct in assuming that the entire GST benefit will be passed on to your consumers,” Goyal added.

“The reform tilts in favour of staples & low-ticket consumption. Short-term fiscal impact is modest at about Rs 25,000 Cr (0.1% of GDP) in FY26, but FY27 could see a deeper imprint: Rs 2 Lakh Cr (0.5% of GDP), depending on fiscal consolidation choices. Insurance and small cars, the categories where tax cuts are large, could benefit the most.”

GST on vehicles has been reduced to 18% and 40% from earlier rates of 28–31% and 43–50%.

Shailesh Chandra, President of SIAM, said, “This timely move is set to bring renewed cheer to consumers and inject fresh momentum into the Indian automotive sector. Making vehicles more affordable, particularly in the entry-level segment, these announcements will significantly benefit first-time buyers and middle-income families, enabling broader access to personal mobility.”

The GST rate of 5% will continue on electric vehicles. Chandra said, “It will help sustain the ongoing momentum towards sustainable mobility.”

“Furthermore, the resolution of classification interpretations and the correction of the inverted duty structure will greatly streamline business processes across the automotive industry, supporting ease of doing business. We are confident that the government will also soon notify suitable mechanisms for the utilisation of compensation cess on unsold vehicles, ensuring a smooth and effective transition,” he added.

“Announcement of changes in GST slabs are largely in line with what was being reported in the media. No change in taxation for EVs should come as a relief, as media reports were indicating possibility of higher taxation on higher priced EVs. There were also concerns among investors on input tax credit (ITC) status for tractors. GST council has allowed ITC for tractors making the reduction of GST as material positive for tractors as well,” says Kumar Rakesh, India Analyst, IT and Auto at BNP Paribas.

Motilal Oswal Financial Services highlighted key stock beneficiaries from GST 2.0:

Given the wide-ranging effect of the measures, many domestic-focused stocks are likely to benefit. Some of the key names include Maruti, M&M, Ashok Leyland, HUVR, Britannia, Varun Bev, Ultratech, JK Cement, Havells, Voltas, Amber, Metro, Trent, Lemon Tree, Indian Hotels, Niva Bupa, HDFC Life, IGL, Acme Solar, Suzlon, Swiggy, Delhivery, ICICI Bank, HDFC Bank, Bajaj Finance, and Shriram Finance.

Motilal Oswal Financial Services highlights, “The resolute stance on simplifying the GST structure should not be seen just as ‘tax reform’ but more as ‘growth reform’. Through simplified rates

and processes, the government intends to boost consumption sentiment. As the Prime Minister has indicated, there will be further reform measures across multiple domains, intended to unleash the animal spirits of the economy, providing a shield against the global geopolitical headwinds.”

The opposition said that the Congress has been demanding GST 2.0 since 2017.

“Faced with a lack of buoyancy in private consumption, subdued rates of private investment, and endless classification disputes, the Union Finance Minister has finally recognised that GST 1.0 had reached a dead end. In fact, the very design of GST 1.0 was flawed, and this had been pointed out by the INC way back in July 2017 itself, when the PM made one of his typical U-turns and decided to introduce GST,” Congress leader Jairam Ramesh said.

“The wait for a true GST 2.0 continues. Whether this new GST 1.5—if it can be called that—stimulates private investment, especially in manufacturing, remains to be seen. Whether this will ease the burden on MSMEs, only time will tell,” Ramesh added.

“For the first time in the history of the country, farmers have been taxed. The Modi government imposed GST on at least 36 items in the agricultural sector,” said Congress president Mallikarjun Kharge .

He added that the government had also imposed GST on everyday essentials like milk and curd, flour and grains, even children’s pencils and books, as well as on oxygen, insurance, and hospital expenses. “That is why we named this GST of the BJP as the ‘Gabbar Singh Tax’,” Kharge said.

“The GST rationalisation is a welcome and well-timed move and its positive implications for consumer demand and producer sentiment will help to offset a portion of the negative impact of the evolving US tariffs and penalties on Indian GDP growth. Any revenue foregone by the Centre and the states would effectively have to be made up through other revenue streams or expenditure rationalisation. Private sector capex decisions may get a boost for domestic consumption oriented sectors. As of now, the RBI may choose to retain its growth forecast for India’s FY2026 GDP at 6.5%, unless there is a thawing in the tariff/penalty situation later this month,” says Aditi Nayar, Chief Economist of ICRA.

Cement has been moved down to 18% from 28%. Jefferies said it can boost sales volumes and also give companies room to raise prices. “The reduction in GST rate by 10% creates some volume upside but potentially also headroom for price hikes, where the sensitivity of the industry to a profit increase is high (1% pricing is 4-5%). Moreover, some cost benefits are likely on the input cost side (earlier coal cess was not creditable).

Jefferies noted that Consumer staples saw an unexpected windfall. “A largely unanticipated tax cut from 18% GST to 5% on staples such as toothpaste, hair oil, shampoo, toilet soap, biscuits and the anticipated cut on processed foods from 12% to 5% are positive for consumer staples companies,” it noted.

The change is a big positive for companies like Colgate, Britannia, Nestlé, Hindustan Unilever, Dabur, Marico and Patanjali, which are expected to see higher volumes as prices fall.

Jefferies highlighted that the auto sector is among the largest beneficiaries of rate rationalisation. Taxes on two-wheelers up to 350cc have been slashed from 28% to 18%, while small cars now face just 18% tax compared with 28-31% earlier. SUV taxes have also come down to 40% from as high as 50%. Tractors and commercial vehicles, too, have seen big reductions.

Jefferies estimate that a 7-10% cut in GST will reduce on-road vehicle prices by 6-8%. “The rate cut will set the stage for strong seasonal demand,” analysts at Jefferies said, adding that companies such as Maruti, TVS, Mahindra & Mahindra, Hero MotoCorp and Bajaj Auto stand to gain the most.

JM Financial noted “The share of the 18% slab to remain stable at 73%-74% of total revenue after this rejig, while the share of 5% slab is expected to inch up marginally to 14%.”

The report highlights that the GST Council estimates the rationalisation will cost about Rs 480 billion, or 0.15% of GDP. However, it expects buoyant tax collections to offset the loss.

Coal will now attract 18% GST, up from 5%. Apparels priced above Rs 2,500 and paper products will also move to the 18% slab from 12%. Construction-related services will be charged 18% with input tax credit, up from 12% earlier.

“The GST rate cuts come at the right time which is just ahead of the festive season and against the backdrop of US tariff tiffs. Lower taxes on essentials, FMCG products, autos and cement will leave consumers with more money in hand. This should directly boost demand, help traders and businesses see higher volumes, and may even favourably impact next quarter’s earnings. It also carries the potential to ease inflation. The key will be how quickly companies pass on the benefits to customers and if done well, this move can lift both sentiment and spending,” says Shripal Shah MD & CEO, Kotak Securities

“We believe that the steep GST cut will boost demand for consumption-oriented companies,” said Vikram Kasat, Head – Advisory, PL Capital.

Key sectors and companies in focus include:

“The implementation of GST is set to unlock a strong wave of domestic demand, with the potential to add 100–120 basis points to GDP growth over the next 4–6 quarters. This structural tailwind provides a powerful offset to external headwinds from higher US tariffs, reinforcing India’s position as one of the most compelling growth stories globally and creating a supportive environment for investors” says Vikram Kasat, Head – Advisory of PL Capital

“Rationalisation of GST will partially help offset the adverse impact of US tariffs in the quarters to come. GST slab consolidation and rate rationalisation is truly ‘ek teer kai nishaan’,” said Nilesh Shah, MD, Kotak Mahindra AMC.

Shah added, “The latest GST announcement lowers inflation, supports growth, boosts consumer sentiment, does not disturb the path of fiscal consolidation, improves ease of doing business, and partially offsets the adverse effects of tariffs.”

“The Diwali gift of Rs 48,000 crore is fiscally manageable. Completing a two-day GST Council meeting in one day shows the urgency. While leakages and fraud in GST need to be dealt with with an iron hand, process improvement should remain a continuous affair with a proper feedback loop,” said Nilesh Shah, MD, Kotak Mahindra AMC.

Shah added, “Savings misallocation happening through F&O speculation and Ponzi schemes, which are making Indians quick-money addicts, costs more than four times the GST gift.

After the Indian government has scrapped the 28% and 12% GST slabs, Jefferies highlighted that the overall fiscal impact for FY26—shared between the Centre and states—is estimated at Rs 22,000–24,000 crore, as stronger demand is expected to cushion part of the loss. Analysts do not anticipate any fiscal strain in FY27, since the conversion of GST cess into regular GST revenue will offset the impact.

Jefferies added, “Based on the FY24 consumption pattern, the government expects a Rs 480 billion tax collection impact from these cuts.”

Reduction from 12-18% to 5%:
Hair Oil
Toilet Soaps
Shampoo
Toothbrush
Bicycle
Tableware and Kitchenware of wood
Namkeen, Pasta, Instant Noodle

Read the full list here: https://www.financialexpress.com/business/industry-new-gst-rates-what-gets-cheaper-and-costlier-from-september-22-check-full-list-here-3966208/

Reduction of 5% to 0%:
Ultra high temp milk
Chena/Paneer
Indian breads

12% to 0%:

33 life-saving drugs

Manuy states have raised the revenue loss aspect. As per market veteran Ajay Bagga that’s not a worry, “higher consumption can be expected . Sectors from staples, durables, autos, cement, paints, and textiles all benefit. Well timed to catch the festival season demand. Expect a consumption boost for the economy . Bank loans to fund the durables and autos should also go up. The theoretical revenue loss will be more than made up by higher volumes as per our expectations.”

Garima Kapoor, Chief Economist of Elara Securities highlighted that, “We expect GST related demand boost to add 100 to 120 bps to the GDP growth over next 4-6 quarters, thereby nullifying the negative impact of higher tariffs on exports to US. We remain constructive on the uptick in consumption demand in the economy as multiple policy levers turn favourable for the first time in a decade.”