New Delhi: The Goods and Services Tax (GST) Council, in its 56th meeting, approved a major GST rate rationalization aimed at simplifying the tax structure and providing relief to consumers and small businesses. The revised GST framework will come into effect from September 22, 2025.
Under the new structure, staple food items will be exempt from GST, while most processed food products will now attract a reduced tax rate of 5%. This move is expected to ease the financial burden on households, boost demand in the food-processing sector, and strengthen India’s overall manufacturing ecosystem.
Key Benefits of GST Rate Rationalization
- Simplified Tax Structure: The four-tier GST system of 5%, 12%, 18%, and 28% has been streamlined into two main slabs — 5% (merit rate) and 18% (standard rate), along with a 40% rate for luxury and sin goods. This simplification is expected to create a stable tax environment, reduce classification disputes, and encourage long-term business planning.
- Reduced Prices for Consumers: With staples exempted and processed foods taxed at 5%, consumers will benefit from lower prices. This affordability is expected to stimulate demand for food products, boosting sales for FMCG and packaged food companies.
- Correction of Inverted Duty Structures: The rationalization addresses cases where input taxes were higher than final product taxes, thereby improving liquidity for MSMEs, reducing working capital blockages, and promoting domestic value addition.
- Resolution of Classification Issues: Similar goods and services will now fall under the same tax slab, minimizing disputes. Items like packaged versus loose paneer or parathas, which earlier attracted different GST rates, will now follow a unified structure.
- Support for Manufacturing and Exports: By rationalizing GST rates, the move is expected to enhance domestic manufacturing capacity, create employment opportunities, and strengthen India’s export competitiveness.
Procedural Reforms Alongside GST Rate Rationalization
The Council also introduced procedural changes to streamline compliance. These include simplified registration and return filing, provisional refund mechanisms for inverted duty claims, and the implementation of the Goods and Services Tax Appellate Tribunal (GSTAT) to speed up dispute resolution.
Impact on the Food Processing Industry
The GST rate rationalization is set to give a strong push to India’s food processing and FMCG sectors. Lower rates will:
- Boost consumption by reducing retail prices.
- Encourage higher investments in the sector.
- Generate more employment opportunities.
- Improve incomes of farmers and food processors through better demand and value addition.
