Indian consumers are set to benefit from a significant easing in the Goods and Services Tax (GST) structure, as the government plans to reduce tax slabs and lower rates on several key items. The proposed overhaul will simplify the current four-tier structure into a two-tier system, aiming to make goods more affordable and boost consumption.The current GST system has four tax slabs: 5 percent, 12 percent, 18 percent, and 28 percent. Essential food items are taxed at nil or 5 percent, while luxury and sin goods, including automobiles, fall under the 28 percent slab, which carries an additional cess at varying rates.The major relief will come from reducing the 12 percent slab to 5 percent and the 28 percent slab to 18 percent, bringing down the tax burden on fast-moving consumer goods (FMCGs) and durables, as per an analysis by the Bank of Baroda. The report estimates that 11.4 percent of Private Final Consumption Expenditure (PFCE) will benefit directly from the changes.The bank estimated taxable consumption at Rs 150 to 160 lakh crore, with the GST reforms expected to boost spending by Rs 0.7–1 lakh crore, or 0.2–0.3% of GDP in the second half of FY26.“The effective tax rate is expected to come off to 14-15 per cent of taxable GST goods and services. This is estimated using our computed Rs 150-160 lakh crore taxable consumption group,” the report read. Food items will be the biggest beneficiaries, with products such as milk, cheese, oils, fats, sugar, confectionery, and processed foods moving from the 12 percent slab to 5 percent.On the non-food side, durable goods, including air conditioners, LED/LCD TVs, dishwashers, and motor vehicles, will see GST rates fall from 28 percent to 18 percent, reviving demand in the consumer durables sector, which grew just 2.6 percent in Q1 FY26 compared to 10.7 percent in the same period last year.The GST overhaul is expected to lower input costs in construction and manufacturing, reducing prices of goods like cement, tyres, and auto parts, and putting downward pressure on CPI and WPI inflation, with 8.5 percent of the CPI basket impacted. The report highlighted that the reforms coincide with a 100-basis-point repo rate cut by the RBI, which could further stimulate demand for auto loans, credit cards, and personal loans. Non-banking finance companies (NBFCs) are also expected to benefit as festive season demand rises.The GST rate rationalisation is being seen as a significant booster for consumption, providing relief at a time when global trade tensions and US tariffs pose challenges for the Indian economy. The GST council, led by Union finance minister Nirmala Sitharaman and comprising all states, is set to meet on September 3 to 4 to discuss moving to fewer slabs, 5% and 18% for most goods and services, and 40% for select luxury and sin items.
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