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Festivals in India are often marked by cheer, bonus, and discounts. But this year, the festive glow carries an extra sparkle with Prime Minister Narendra Modi announcing sweeping GST reforms in his Independence Day address. The promise? A simpler two-slab GST system that could reshape what households pay for everything from groceries to insurance.
Since its launch in 2017, GST has achieved much of its intended purpose—simplifying compliance, reducing the cascading effect of taxes, and creating a unified national market. Yet, one pain point has remained unresolved: the multiplicity of rates. Spread across four slabs, GST has often sparked disputes over classification—whether a chocolate-coated biscuit is a ‘biscuit’ or a ‘luxury snack’—and, more importantly, pushed up the final cost for consumers.
The proposed restructuring of converging the four-tier tax rates into two slabs, one for merit goods and another for standard goods, seeks to correct this. For households, the change is less about abstract tax design and more about the bills they pay each month. The big question is: how does this affect your wallet across everyday categories?
Let’s start with the shopping basket that finds its way into every household week after week. Food and groceries nearly account for 46% of the overall household expenditure. A GST tweak here touches every family. Currently, items like ghee, butter, cheese, packaged or frozen foods fall in the 12% slab. The proposed move to 5% could lower prices by INR 40–50 per kg of ghee, depending on brand pricing. Add frozen foods, packaged staples, and edible oils to this bucket, and the monthly grocery bill for a middle-class family spending INR 10,000 a month could reduce by INR 400–600. It may not feel like a windfall, but against the backdrop of food inflation, it is a meaningful relief.
Another category where the new GST structure could have a deep impact is insurance services. With life insurance penetration of just 3.2% of GDP and health insurance covering less than 40% of the population, the higher 18% GST rate adds to cost. If insurance premiums are exempted from GST, a family paying INR 50,000 annually on health cover could see an immediate saving of nearly INR 7,000–8,000, enough to tilt the decision in favour of wider adoption. For a country vulnerable to medical inflation, estimated at 14% annually, this rationalisation is not just fiscal but social too.
For households planning a big purchase like an air-conditioner, large screen television, or dishwasher, the GST reform could not be better timed. Currently, most of these products attract a 28% rate, treating them as luxuries. A reduction to 18% could shave INR 5,000 off a INR 50,000 AC or INR 2,500 off a INR 25,000 television. For young families setting up homes, these savings matter. For the economy, it could mean higher consumption, stronger manufacturing output, and fresh jobs—directly aligning with the ‘Make in India’ push.
If there is one sector where GST 2.0 reforms will be felt immediately, it is the automobile sector. Take a small car with an ex-showroom price of INR 10 lakh. Currently, 28% GST plus a 1–22% compensation cess is applicable. Even at the lower end of this cess band, the total tax outflow easily touches INR 3.5 lakh, inflating the on-road price for buyers. Now imagine the same car under the proposed 18% GST slab with a rationalised cess structure. The total tax burden would drop to nearly INR 2 lakh—a saving of over INR 1.5 lakh for the consumer. For a price-sensitive, aspirational segment like small cars, this could unlock demand, nudge fence-sitters into showrooms, and inject fresh energy into an industry often seen as a barometer of India’s middle-class confidence.
GST 2.0 also envisages a 40% sin rate for tobacco, aerated drinks, online gaming, and other demerit goods, which sends a clear message that while the Diwali hamper may cost less, a gutkha pack will not. Unlike essentials or automobiles, where tax relief directly translates into lower prices, this slab is designed as a deterrent, not a delight. Companies in these sectors will have little room to cushion the blow, and the higher levy will almost certainly be passed straight to consumers, making indulgence a costlier affair.
Crucially, it is the strength of consistent GST collections—crossing record highs month after month—that has given the government the fiscal space to take such a bold, people-centric decision.
This year, the festive joy is not only in lights, sweets, and celebrations but in a policy shift that could leave households with more breathing room. By making essentials affordable, insurance accessible, and aspirations achievable, the GST reform may touch lives in subtle but powerful ways. The gift is not just in cheaper products but lies in the simplicity, fairness, and confidence the system now inspires.
Shilpa Verma, Associate Director, Grant Thornton Bharat, has also contributed to this article.
This article first appeared in the Business Today on 21 August 2025.
