GST Rate Reductions from Today: Household Items and Services Become Cheaper

New Delhi, Sept 22, 2025 – On a positive note from today, the prices of domestic essential items across India – including kitchen staples, medicines, automobiles, and electronics – are expected to drop as sweeping GST reductions on around 375 goods and services come into force under the new GST 2.0 regime.

What’s New Under GST 2.0

The regime of Goods and Services Tax has been simplified by the removal of the old four slab system (5%, 12%, 18%, 28%) to just two main slabs: 5% for basic goods and household necessities, and 18% for general goods and services. There will be 40% on certain luxury and sin commodities. GST has been abolished entirely on life and health insurance premium of individuals. The majority of medicines and medical equipment will move from the higher GST rates and become less expensive for patients. FMCG firms, milk and dairy, and automobile industry companies have already announced price reductions. Amul, for example, is cutting prices on butter and cheese while automobile firms such as Maruti Suzuki have passed rate cuts for the small cars.

Expected Economic Impacts

Experts believe that such rate reductions will fuel consumption significantly during the festival season. Bank of Baroda forecasts GST cuts could inject consumption of up to ₹1 lakh crore in FY26 and cut inflation by 40 basis points.

Inflation expectations have been revised modestly lower, with economists guessing that headline CPI inflation will remain in the Reserve Bank of India’s comfort zone, aided by softer run-of-the-mill items. Retail inflation in August ticked moderately up to ~2.07%, but the impact of GST cuts, once passed through entirely, should help hold prices in check.

Real-Life Effects & Supply-Side Adjustments

In the majority of the cities, the reduction in prices is already being witnessed in items like namkeen, sweets, and bakery products, which have moved from higher tax slabs to 5% GST. In Indore, for example, popularly consumed namkeens like Ratlami sev, laung sev, and khatta-meetha mixes are currently available at a discount of about ₹20-30 per kilogram.

To facilitate the switch, the government relaxed price-sticker rules: pre-Sept 22 stockpiles of packaged goods do not have to immediately show new tax rates on packaging to save time and money for companies.

Future Outlook

The big question in everyone’s mind today is how completely and quickly companies will pass on the tax cuts to consumers. For most consumer goods companies, automakers, and electronics companies, the effects are likely to be delayed due to inventory holding, supply chain costs, and pricing judgments.

Seasonal demand for the festive period should also pick up as consumers feel real relief in prices. Lower GST on vehicles and white goods may trigger purchases in the sub-₹10-lakh segment. But sin/goods at 40% categories may see slowing gains.

Inflation is likely to come down further—estimates are of up to 50-90 basis points drop in inflation over the next couple of months in segments where goods have moved to lower tax rates.

Overall, the GST 2.0 reforms are being viewed as a consumption stimulus program that may potentially speed up domestic demand growth, especially from small cities. The effectiveness of pass-through, the sentiment of consumers, and how global macro risks play out will determine the magnitude of the gain.

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