GST Reforms 2.0: Autos, FMCG, Cement, and Insurance Rise While Beverages and Luxury Goods Feel the Heat

The GST Council has rolled out the much-awaited GST 2.0, a major reset to India’s indirect tax system. After years of working with multiple tax rates, we’re now moving to a cleaner, simpler model. Finance Minister Nirmala Sitharaman called it a step towards simplification and ease of compliance. The idea is to make GST more consumer-friendly and easier for businesses to handle.

The changes will be effective from September 22, 2025, just as the festive season begins, and are set to impact almost every sector of the economy.

In this blog, we’ll break down the new GST slab structure, look at which industries stand to gain, who might feel the pinch, and what it all means for investors, companies, and the market at large.

The New GST Tax Slab Structure

Under GST 2.0, the earlier four-tier system (5%, 12%, 18%, 28%) has been replaced with a cleaner structure. Here’s how it looks:

Standard Rate – 18%
This is the broad slab that covers most goods and services. It becomes the default rate for most sectors, creating uniformity and removing confusion.

Merit Rate – 5%
This slab is designed for essential or mass-consumption items used by the common man. The intent is to ease the cost of living and put more disposable income in the hands of consumers.

Luxury / Sin Goods Rate – 40%
This slab covers luxury and sin goods; the non-essential or harmful items are kept expensive to discourage consumption and make up revenue lost from tax cuts on everyday items.

Nil / Exempt – 0%
It applies to essentials, important medicines, and even life and health insurance. The purpose is to ease household expenses and make basic needs like education and healthcare more affordable and accessible.

Who Benefits: Sectors Positively Impacted

These sectors are going to benefit from lower tax rates, correction of inverted duty structures, or expanded exemptions

FMCG 

• The biggest relief comes from the cut to 5%, down from the earlier 12% and 18% brackets, making processed foods, packaged staples, shampoos, toothpastes, soaps, chocolates, pizzas, ice creams, and sauces cheaper.
• The market reaction was quick. The Nifty FMCG index jumped around 2.66% in early trading, with Britannia up 6%, ITC 2.4%, Gillette India 4%, Nestlé India 3.7%, and HUL over 2%, reflecting strong investor enthusiasm.
• Lower GST on essentials and discretionary items is expected to boost consumption, support volumes, and improve pricing power, with investors anticipating stronger demand for FMCG stocks in the coming months. These sectors are going to benefit from lower tax rates, correction of inverted duty structures, or expanded exemptions

Automobiles

• GST on Small cars (petrol ≤1200cc, diesel ≤1500cc, length ≤4m), two-wheelers up to 350cc, trucks, and three-wheelers have moved to the 18% GST slab, while commercial vehicles and tractors see GST reduced to 5% on equipment and parts.
• The Nifty Auto index rose 2.5% in the morning, with M&M leading at 6.6%, Eicher Motors up 3.46%, and Hero MotoCorp and TVS Motor adding 1.65% and 1.5% respectively, reflecting strong investor optimism following the announcements.
• The tax cuts make vehicles more affordable, boosting sales for entry-level cars and two-wheelers, particularly in rural and middle-class markets.
• Lower costs for commercial vehicles could drive replacement and fleet expansion, supporting overall volumes and improving auto company margins.

Consumer Durables & Electronics

• GST on ACs, dishwashers, TVs (LCD & LED, all sizes), and washing machines has been reduced from 28% to 18%, making these items more affordable.
• The GST cut sparked positive investor sentiment, with Havells rising 1.93% today and Amber Enterprises up 1.6% in early trading, highlighting renewed confidence in the consumer durables sector.
• Lower GST rates are expected to drive festive-season demand, encouraging buyers to upgrade to higher-end appliances and fueling volume growth across brands.

Retail (Apparel & Footwear)

• In apparel and footwear, items priced up to ₹2,500 now attract 5% GST (down from 12–18%), while textile inputs have also moved to 5% from 12%. Products above ₹2,500 are taxed at 18% (up from 12%).
• Retail stocks saw a sharp move following the announcements, with Trent up 3%, D-Mart 1.6%, Metro Brands 5%, and Bata 6.8%, reflecting strong investor optimism for mass and mid-premium retailers.
• Lower GST makes apparel more affordable, boosting competitiveness, driving volume growth in mid-tier and budget segments, supporting festive-season sales, and allowing retailers to offer lower prices to consumers

Renewable Energy

• GST on wind, solar, and bio-gas equipment has been cut from 12% to 5%, making renewable energy solutions more affordable and investment-friendly.
• The GST cut lifted investor sentiment, with companies like JSW Energy, Adani Green, and Vikram Solar might see renewed interest. Lower taxes are expected to encourage investment in renewables, support the adoption of clean energy solutions, and drive growth across the sector.

Insurance 

• All individual life and health insurance policies, including retail, family, and ULIPs, are now exempt from 18% GST, making them effectively zero-rated.
• The GST cut lifted investor sentiment in early trading, with SBI Life rising 1.5%, LIC up 2.1%, and ICICI Prudential Life gaining 2%.
• The 0% GST is expected to increase persistency, penetration, and overall demand, reduce out-of-pocket costs, and support broader access to insurance, while maintaining positive sentiment for insurers and hospital stocks.

Stationery, Education Supplies

• GST on notebooks, erasers, and other educational items has been reduced to 0%, down from 12% or 5%, making essential supplies completely tax-free.
• Education and stationery stocks jumped, with DOMS up 7.5% and Navneet rising 4.44% at market open, reflecting positive investor sentiment.
• The GST cut directly benefits students and households, making essential educational items more affordable. For companies, this could translate into higher sales volumes, stronger revenues, and improved market sentiment in the education and stationery sector

Pharmaceuticals & Healthcare

• GST on most medicines has been cut from 12% to 5%, while 33 life-saving drugs, including treatments for cancer and rare diseases, are now completely exempt.
• Medical-grade oxygen, diagnostic services, and essential healthcare equipment have also moved to the 5% slab, improving affordability for patients.
• The GST cuts benefit both the healthcare system and patients by making medicines and equipment more affordable. While companies may face some margin pressure, higher demand and smoother compliance are expected to offset it, supporting overall sector growth.

Cement and Building Materials

• GST has been reduced from 28% to 18%, lowering costs for construction and infrastructure projects.
• Cement stocks jumped at market open, with GR Infra up 1.4%, PNC Infratech 1.5%, and Ultratech rising 1.8%
• Lower GST reduces project costs, boosts demand for cement, and supports infrastructure activity. Companies may see improved volumes and margins, benefiting from higher sales and potential price adjustments.

Hotels & QSRs

• Hotel rooms priced up to ₹7,500 per day now attract 5% GST, down from 12%, while restaurants and QSR services largely remain at 5% without Input Tax Credit (ITC).
• Jubilant Foodworks rose 3.4% and Devyani International soared 3.9% today, reflecting early positive sentiment.
• Lower taxes make budget hotels and casual dining more affordable, likely increasing occupancy and footfall. This should boost sales and revenue for companies in the mid-tier hospitality and quick-service restaurant segments.

Who Loses: Sectors Negatively Impacted

Only a few categories, mainly de-merit or luxury ‘sin goods’ and upper-mid to premium segments, are likely to face negative impacts.

Tobacco and Pan Masala

• Tobacco products, cigarettes, and pan masala are now taxed at 40% (up from 28% or lower plus cess), marking a steep rise from previous rates.
• Firms like ITC and Godfrey Phillips will face higher input and retail prices. While margins may be preserved through price hikes, volume could be affected due to demand sensitivity.

Luxury Cars and SUVs

• GST on big cars and SUVs (length >4m or large engines), high-end yachts, and certain aircraft has been raised to a flat 40%, up from previous rates of 28% (or lower plus cess in some cases).
• The sharp hike increases input and selling prices, which could dampen demand in the premium auto segment. Luxury car makers and high-end SUV brands may face negative volume and margin pressure unless buyers absorb the higher costs.

Fossil Fuels & Paper Products

• GST on coal, lignite, peat, and select paper, wood, and pulp products has been increased to 18%, up from the earlier 5% or 12% slabs.
• The GST hike raises costs for coal-based power generation such as Coal India, cement, and related industries. Companies could face margin pressure unless they manage to pass on the higher costs

Hospitality (Luxury Hotel Rooms)

• Hotel rooms priced above ₹7,500 per day remain at 18% GST, with no rate cut for the luxury segment.
• The GST cuts mainly benefit mid-tier and budget hospitality segments, offering little to no advantage for premium hotels, luxury stays, or resort properties. Companies like The Oberoi Group and Taj Hotels may not see immediate demand gains from this reform.
• Premium hospitality firms may need to rely on service differentiation and marketing, while mid-tier operators could capture more price-sensitive customers.

Non-alcoholic beverages 

• Other non-alcoholic beverages, including premium juices, iced teas, and carbonated/caffeinated drinks, have jumped sharply to  40% GST, up from 18%.
• The sharp tax increase is likely to reduce demand, putting pressure on volumes and margins for beverage companies. Firms may struggle to fully pass on the higher costs to consumers without affecting sales.

The Bigger Picture

• GST 2.0 is more than a rate cut: It’s a major simplification aimed at boosting consumption, reduce compliance hurdles, and fix anomalies in the GST system.
• Market winners and losers: Early beneficiaries include Autos, FMCG, Cement, Insurance, Consumer Durables, and Apparel; beverages, premium goods, and sin items may face headwinds.
• Easier business operations: Duty mismatches corrected, faster refunds, and a clear operational timeline for the GST Appellate Tribunal.
• Investment and working capital boost: Lower taxes and quicker refunds for sectors like textiles, fertilizers, and renewables are expected to free up capital and encourage investment.
• Broader economic impact: MSMEs, rural markets, and discretionary/semi-durable consumption are likely to see positive effects.
• Support for demand and financials: Higher consumption and spending could improve capex confidence and benefit financial companies through increased credit flow and transactions.

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