Sitharaman delivers on PM's Diwali promise: Who are the winners and losers?

From daily staples like milk and paneer to small cars and two-wheelers, the new two-slab GST structure is set to make essentials more affordable while making luxury goods costlier

Union Finance Minister Nirmala Sitharaman on Wednesday announced major Goods and Services Tax (GST) reforms spanning across sectors aimed at easing the tax burden on consumers, while also rationalising the GST rates from the previous four slabs to a simplified two-tier structure of 5 per cent and 18 per cent, with another flat 40 per cent rate. This is in line with Prime Minister Narendra Modi's promise of major GST overhaul, which he made during his Independence Day speech.

 

While most sectors, including agriculture, food, handicraft, insurance, and healthcare, stand to benefit significantly, some sectors such as luxury and sin goods, are staring at higher rates. 

 

 

Let's take a look at how the revamped structure will affect different sectors and what the industry leaders say.

Fast-moving consumer goods

The fast-moving consumer goods (FMCG), comprising products that are sold quickly, such as food, beverages, and toiletries, is set to see multiple goods moving to the lower 5 per cent tax bracket. Under the revised GST structure, ultra high temperature milk, packaged paneer, pizza bread, chapati/roti and parotta will now attract nil tax, making everyday staples more affordable.

 

The GST rate has been cut to 5 per cent from 12 per cent on several key items, including butter, ghee, cheese, condensed milk, dried fruits and nuts, starches, inulin, animal and fish fats/oils, pasta, noodles, and others.

 

Meanwhile, products that earlier attracted 18 per cent GST, such as chocolates, biscuits, pastries, ice cream, soups, coffee and tea extracts, packaged flavoured or mineral water, will also be taxed at the lower rate of 5 per cent.

How will it impact:

• Provide major relief to households by easing expenses
• Free up household budgets for discretionary spending
• Strengthen formal supply chains and improve market efficiency
• Build greater consumer trust in regulated markets
• Enable brands to compete effectively with unorganised producers

Exempting essential consumables such as milk, paneer, and parathas will provide major relief to households, reaffirming the government’s enduring commitment to public welfare, said Krishan Arora, Partner - Tax Planning & Optimisation, Grant Thornton Bharat.

 

Experts said the reforms will help ease household budgets, thereby increasing discretionary spending, besides giving a boost to domestic economic growth. However, some raised concerns over the inclusion of aerated beverages in the 40 per cent bracket.

 

Upendra Nath Sharma, Partner, JSA Advocates & Solicitors, said, "Bringing daily household items under the 5 per cent category from 12 per cent will be a big relief for the domestic households. However, including aerated beverages in the top-most bracket doesn’t seem rational, given that other sugary items like Gulab Jamun, Rasgulla, etc, which also have a very high sugar content, are still in the 5 per cent bracket."

 

Most of the industry experts welcomed the move, calling it very timely. Bhuvaneswari Nara, vice-chairperson and managing director, Heritage Foods, said, "Moving everyday staples to nil or a 5 per cent rate will have a broad impact, as these categories touch nearly 100 per cent of Indian households. Not only do these essentials lighten the monthly grocery bill, but the reforms also help high-quality, branded products compete effectively with unorganised and unregulated producers."

Automobile industry

GST rates have been reduced to 18 per cent from 28 per cent on the following:

 

i. Motor vehicles with Petrol/ LPG/ CNG combustion engine having a capacity of up to 1200cc and a length up to 400 mm;

ii. Motor vehicles with a Diesel combustion engine having a capacity of up to 1500cc and a length up to 400 mm;

iii. Two-wheelers under 350cc

 

Luxury cars and high-end vehicles now attract a flat 40 per cent tax.

 

Electric vehicles will be taxed at the existing 5 per cent rate.

How will it impact:

• Promote affordability and encourage greater use of public transport
• Discourage high-end and luxury consumption
• Push automakers to redesign their pricing strategies
• Lead to shifts in product positioning and market segmentation

Industry leaders welcomed the move, especially keeping the EVs in the same slab, saying that it will provide further clarity on how products will be taxed. Commenting on the move, Head of Audi India Balbir Singh Dhillon said, "This brings much-needed clarity and makes our portfolio more accessible to our discerning buyers. Such reforms help stabilise the business environment and help devise strategies that benefit all stakeholders in the best possible manner."

 

Maruti Suzuki Chairman R C Bhargava said, "With the latest GST reduction, we project that the small car market, which was degrowing, will now grow this year by over 10 per cent. As a result, the overall passenger car market should grow by 6-8 per cent.” 

 

Experts believe the move will boost consumption across different segments of society. "The GST tax cuts are a major move to further turbocharge growth. For our industry especially, it’s a welcome move as it will help two-wheelers become more accessible and also help those looking to upgrade," said Sudarshan Venu, chairman, TVS Motor Company.

Healthcare sector

Nil GST rate has been introduced on 33 essential medicines. Even medical apparatus, devices used for surgical, dental or veterinary usage will be charged at 5 per cent, down from 12-18 per cent. A 5 per cent GST rate has been proposed on bandages, diagnostic kits and reagents, glucometers, among others.

How will it impact:

• Reduce healthcare costs
• Improve access to essential services and products
• Stimulate domestic manufacturing capacity
• Enable transparent and fair pricing
• Support better market planning and efficiency
• Boost medical tourism and attract global patients

Experts say that the news rates bring a decisive win for patients and the pharma industry alike. "By keeping formulations at just 5 per cent, treatment costs for millions of households will become more manageable. This isn’t just tax policy; it is a lifeline that puts affordability and public health at the forefront," said Manoj Mishra, partner and tax controversy management leader, Grant Thornton Bharat. Mishra added that the move will expand access in semi-urban and rural markets, ease litigation, and free up resources for innovation.

 

Sheetal Arora, promoter & CEO, Mankind Pharma, said, "By removing GST on lifesaving rare-disease and oncology therapies and reducing it on essential medicines and diagnostics, the government has signalled that affordability and innovation can go hand in hand. Equally important is the reduction in GST on pharma manufacturing services, which will improve cost efficiencies and strengthen supply chains."

 

Experts said that the new rates will provide the much-needed impetus to the life sciences and health care sector. Monika Arora, Partner, Deloitte India, said that the reduced costs will make medical procedures more affordable and boost medical tourism.

 

"However, one concern is that the enhanced working capital pressure caused by duty inversion on account of the higher rate of 18 per cent on Active Pharmaceutical Ingredient (APIs) as against the reduced rate of nil or 5 per cent on finished formulations. But this is effectively addressed by the recommendation to allow 90 per cent provisional refunds on claims arising from such inverted duty structure," he said.

Insurance sector

In one of the key decisions, the government has decided to slash GST on individual health and life insurance premiums from a hefty 18 per cent to zero.

How will it impact:

• Expand coverage to a wider section of the population
• Deepen social protection and strengthen the welfare net
• Leave a direct financial benefit in the hands of consumers
• Improve access to timely and better-quality healthcare services

Industry experts said that the move will expand coverage and deepen social protection. Shobana Kamineni, executive chairperson, Apollo Healthco, said, “Zero GST on health and life insurance is a masterstroke, making protection a right, not a privilege."

 

"The exemption from GST on health insurance will leave a direct benefit in the hands of the consumer and allow access to timely and better health care. These measures will ease off the cost pressures on our health system, enhance patient access and advance India’s position as a global life science hub," Deloitte's Arora said.

Consumer electronics sector

GST rates have been reduced to 18 per cent from 28 per cent on products like air conditioners, dishwashers, and televisions.

How will it impact:

• Make goods more accessible to middle-income households
• Promote aspirational buying and boost festive season demand
• Support volume growth for manufacturers and retailers
• Pose challenges in re-pricing existing inventory
• Require updates to billing systems and invoicing processes.

Welcoming the move, experts said consumer optimism is at an all-time high, and it will likely ease inflationary pressures, strengthening purchasing power. Moreover, the reform will not only enhance affordability but also fuel aspirational buying.

 

"The move will cement India’s position as one of the world’s largest consumption markets and make it an increasingly attractive destination for global investment. It empowers us to bring innovative, lifestyle-enhancing solutions into more Indian homes,” said Alok Dubey, CFO, Acer India.

Textiles and footwear

The majority of goods under the textile sector have been brought at a uniform 5 per cent rate across the supply chain. However, clothes and footwear priced above ₹2,500 will attract a higher rate of 18 per cent, up from 12 per cent.

How will it impact:

• Likely to ease working capital pressures
• Could enhance export competitiveness
• May create challenges around classification and pricing strategies

With the wedding and festive season approaching, experts believe the impact will be minimal, as most of these purchases are aspiration-driven. Commenting on the move, Amit Agarwal, Group CFO, Raymond, said, "For the upcoming festive season, we see its impact in two distinct ways. In the mass and mid-market categories, this will likely channel consumer demand towards the highly attractive ₹2,000-2,500 price band. However, for the merchandise segment above the price band of ₹2,500, we believe the impact will be minimal as these  purchases are driven by aspiration, a 6 per cent increase in GST rate is unlikely to deter a determined buyer."

 

"Furthermore, this widens the tax differential with our fabrics business, which remains in the 5 per cent slab, giving it a strategic advantage. Our initial booking trends are already very encouraging, and with rising disposable incomes, we remain confident that this festive season will fuel a stronger consumption cycle than last year and also in line with the upcoming marriage season," he said.

 

Nikhil Aggarwal, whole-time director and CEO, Campus Activewear, said, “The GST Council’s decision will help formalise India’s footwear industry. For a consumption-driven economy like ours, this measure will fuel demand across categories, especially in Sports and Athleisure, which already dominate two-thirds of the market.”

Real estate and construction

The Council has reduced the GST rate on cement to 18 per cent from 28 per cent, while the rate on sand lime bricks or stone inlay work and granite blocks has been reduced to 5 per cent from 12 per cent.

How will it impact:

• Home prices are likely to decline
• Demand may rise during the upcoming festive season
• Could help cushion the impact of global economic headwinds

Experts believe that the reduction of GST rates on critical infrastructure enablers, including cement, motorcycles, buses, trucks, and televisions, signals a deliberate push toward affordability, capital formation, and investment-led growth.

 

Because of the move, home prices may fall 1-1.5 per cent depending on project type and cement cost savings, said Dr. Samantak Das, chief economist, JLL.

 

Ashok Hinduja, chairman, Hinduja Group, said, "The rate cuts augur well for the economy as they will support India’s macroeconomic stability by spurring demand at the very grassroots level. This move was a much-needed consumption booster to cushion the global economic headwinds resulting from the lopsided tariff regimes being pushed by the US."

Luxury and sin goods

While essential items have been shifted to lower tax brackets, luxury and sin goods will face steeper levies. The GST Council has imposed a flat 40 per cent rate on high-end cars, aerated beverages, alcohol, and tobacco products. The move is aimed at balancing consumer relief on daily-use items with the need to curb non-essential and health-adverse consumption, while also safeguarding revenue for the exchequer.