The GST Council has approved a major overhaul of its tax structure, simplifying it into two main rates and providing significant relief to the food processing sector. The changes, effective from September 22, 2025, are expected to lower consumer prices, boost demand, and streamline business operations across the country.
The GST Council, in its 56th meeting, rationalized the tax structure from four slabs (5%, 12%, 18%, and 28%) to a new two-rate system: 5% (merit rate) and 18% (standard rate), with a separate 40% rate for sin/luxury goods. The food processing sector is a primary beneficiary, with most of its products now falling under the new 5% merit rate.
Major GST Rate Reductions on Food Products
The new tax rates are set to make a wide range of everyday food products more affordable for consumers.
- Tax-Exempt Status: Ultra-High Temperature (UHT) milk, previously taxed at 5%, is now completely tax-free.
- Reduced to 5%: A large number of products, including condensed milk, almonds, malt, chocolates, pasta, biscuits, namkeens, jams, fruit juices, and ice cream, have had their GST rates reduced. Previously, these products were taxed at 12% or 18%.
- Plant-Based Drinks: The GST on plant-based milk drinks and soya milk drinks has also been significantly reduced to 5% from 18% and 12%, respectively.
Economic Impact and Benefits
This GST rate rationalization is expected to create a virtuous cycle of economic growth, benefiting a wide array of stakeholders:
- For Consumers: The simplified structure and lower rates will translate into reduced prices for almost all food products, enhancing affordability and promoting a better standard of living.
- For Businesses: The new structure will correct long-standing inverted duty structures, where inputs were taxed higher than finished products. This will provide immediate relief to MSMEs, improve liquidity, and encourage domestic value addition.
- Market Growth: Lower prices are projected to boost demand for food products, leading to increased investment and job creation.
- Simplified Compliance: By placing similar goods and services in the same rate slab, the new system aims to reduce classification disputes, lower litigation costs, and create a more stable business environment.
In addition to the rate cuts, the GST Council has approved procedural reforms to streamline registration and return filing and expedite the resolution of appeals through the implementation of the Goods and Services Tax Appellate Tribunal (GSTAT). These measures are designed to further reduce compliance burdens and drive overall economic growth.