Once branded the “Gabbar Singh Tax” for its sting on wallets, GST has gone through a much needed makeover and this time, it’s playing hero for the common man by becoming the “Great Savings Tax”.
From the roti on your plate to the kapda in your wardrobe and the makan you dream of buying, the tax reset has trimmed costs across the board. India’s middle class, which is already expanding faster than any other income group, is expected to feel this relief the most in its monthly budgets, as much as 7-8% in Urban India and 5-6% in rural areas. However, this is subject to how much India Inc is willing to translate the benefits to the customers.
In its biggest reset since 2017, the GST Council scrapped the 12% and 28% slab and shifted most mass-consumed items into either the 5% or 18% bracket, effective Sept 22. With the Modi government’s GST 2.0 and income tax relief as provided under Budget 2025, the winner is clear: The aam aadmi, also known as India’s middle class.
What has changed for the three pillars of household budgets
Everyday kitchen staples such as UHT milk, paneer, pizza bread, rotis and parottas are now tax-free, while butter, ghee, cheese, jams, sauces, dry fruits, biscuits, chocolates, cornflakes, soups and ice cream have dropped to 5% from 12–18%. With food inflation already negative, families are set to feel a tangible cut in monthly grocery bills.
“The GST reset could offer some relief to middle-class budgets. For instance, the GST on packaged food items like namkeens and biscuits has been reduced from 18% to 5%, making a ₹100 grocery basket nearly ₹11 cheaper. Similarly, personal care products such as shampoo and toothpaste now attract just 5% GST, down from 18%, which may result in modest saving for a typical family. These changes may ease monthly outflows and could influence consumption patterns for everyday essentials,” said Abhishek Jain, Partner and National Head – Indirect Tax, KPMG in India.
This also comes amid consumption in India seeing an uptick as NielsenIQ data showed sales of packaged foods, cleaning items and personal care products rose 6% by volume in Q1 FY26, up from 5.1% in the previous quarter, momentum that GST 2.0 could reinforce.
On the clothing side, fabrics and apparel up to ₹2,500 now attract 5% GST instead of 12%, offering festive-season relief for middle-class wardrobes, though apparel above ₹2,500 will face 18%, which industry bodies flagged as a setback for winter wear.
Housing inputs like cement and paints have moved to 18% from 28%, a change real estate leaders hailed as a “festive bonanza.” “The GST cuts on key inputs like cement and steel could marginally lower construction costs, potentially improving the viability of housing, particularly affordable housing in Tier 2 & Tier 3 cities and supporting growth in the housing and allied retail segments,” KPMG’s Jain said.
"As households find relief in their everyday expenses, we can expect to see renewed optimism in the market, increased footfall in retail spaces, and greater momentum in housing uptake—each contributing to a more vibrant and resilient economy," said Achal Chawla, Tax Partner at EY India.
But why is the middle class’ win the economy's win?
The timing matters. Oxford Economics predicts that emerging-market middle classes will double in the next decade— expanding from 354 million households in 2024 to 687 million by 2034. By 2029, two in every three middle-class consumers are expected to be from Asia. The biggest increases will come from China, India, Indonesia, the Philippines and Vietnam.
For now, let’s focus on India and what’s coming.
According to a report by the People Research on India’s Consumer Economy (PRICE) in 2023, India’s middle class is the fastest-growing segment of the population, expanding at 6.3% annually between 1995 and 2021.
It represented 31% of the population as of 2023, projected to rise to 38% by 2031 and 60% by 2047, that is over one billion people. “Growth in income will transform India from an aspirers-led economy to a truly middle-class driven one -- growing from $2.2T in 2021 to $7.1T in 2031 -- and consumer spending rising from $1.9 trillion to nearly $5.2 trillion by 2031,” the report said.
Also Read: Trump’s tariff pains, Modi’s GST relief: Govt gives a reform armour to every Indian
The implications are visibly there. By 2030, India is expected to add 75 million middle-class households and 25 million rich households, with these two categories together accounting for 56% of the population. Rising incomes are set to push consumer spending from $1.9 trillion in 2021 to nearly $5.2 trillion in 2031, with middle-class households alone driving more than half of incremental demand.
Beyond relief: A structural shift, focus on savings
Against these numbers, GST 2.0 provides immediate spending relief while reinforcing a longer-term structural shift. For households that have only recently moved from subsistence to security, even small savings on food, clothing, and housing inputs translate into greater discretionary spending.
EY India's Chawla expects a 5 to 6% reduction in monthly budget for rural areas while, in urban households this might be slightly higher, in the range of 7 to 8% in terms of real savings for families.
“The rate rationalisation and exemptions announced in the 56th GST Council meeting are expected to yield measurable relief in household consumption expenditure across income groups. For middle-income households (annual earnings ~₹8–10 lakh), the estimated annual saving is in the range of ₹25,000–30,000, representing a similar 3–4% reduction in effective consumption tax incidence. These savings, coupled with the exemption of life and health insurance and simplification of the GST rate structure, will enhance disposable income, improve affordability of essential goods and services, and support demand-led growth,” Chawla told ET Online.
Also Read: GST- Once branded Gabbar Singh Tax, it turns out to be Good and Simple Tax
That is why the Modi government’s reset is being viewed as not just a festive gift but also a move that aligns taxation policy with the country’s evolving income pyramid. KPMG's Jain noted that there may be a short-term uptick in consumption, particularly among middle-income groups with essential goods becoming more affordable under the revised GST rates. "Over time, any cumulative savings could either support discretionary spending or contribute to household savings, depending on broader economic sentiment and individual financial priorities."
The big question now is whether lower GST will spark higher consumption or translate into savings. Modi & Co have pitched the reforms as a Diwali gift, but the real impact depends on how India Inc chooses to pass on the benefits to consumers.
“The reduced GST rate is likely to spur immediate consumption. Especially with the festive season approaching, one would see a spur in the selling of motor vehicles, air-conditioners, television sets, projectors etc. Further, the long-term economic impact will hinge on several factors, including effective and transparent implementation of GST 2.0 in terms of speedy refunds, relaxation in provisions on discounts, rate cuts reaching the end consumers etc.,” said Harpreet Singh, Partner, Indirect tax at Deloitte.
Meanwhile, as per a report by ET in August, FMCG companies were said to be preparing to pass on the benefits quickly by restoring grammage in ₹5 and ₹10 packs, reversing the shrinkflation trend of the past two years. “Relevant grammage which had to be taken off will come back in packs very quickly; we will work on adjustment in weight, particularly for small packs,” Akshay Bector, MD of Cremica Food Industries, had told ET earlier.
A Policy Trio: Tax reforms, RBI rates and inflation falling in sync
The GST relief comes on the back of two other big steps this year. In Budget 2025, the government extended income tax relief by widening slabs and easing the burden on salaried taxpayers.
Soon after, the Reserve Bank of India delivered a gradual 100-basis-point cut in policy rates, the sharpest in recent years, lowering borrowing costs for home loans, vehicles, and credit.
Macro indicators are moving in tandem. CPI inflation fell to 1.55% in July 2025, its lowest since June 2017, while food inflation entered negative territory at -1.76%, signaling softer price pressures. At the same time, GDP growth of 7.8% in Q1FY26 has surprised on the upside, giving the government headroom to push consumption and private investment. As per FinMin, the share of private consumption in nominal GDP increased from 60.2 per cent in FY24 to 61.4 per cent in FY25. This marks the second-highest level in the last 20 years, indicating sustained strength in consumption demand across the country.
Also Read: GST 2.0 trigger throws up over 90 stock ideas as rate cuts may spark new market cycle. Full list
Together, this policy trio: Income tax cuts, interest rate relief, and GST restructuring, aligns fiscal, monetary, and structural measures in a way that directly touches household budgets and supports wider economic activity.
In all, GST’s timing has been nothing short of a Bollywood hero's entry. With income tax cuts, cheaper loans and inflation easing, the common man might be walking into this festive season with more money in hand and more choices on the table. The climax, though, will be written by India Inc.
From the roti on your plate to the kapda in your wardrobe and the makan you dream of buying, the tax reset has trimmed costs across the board. India’s middle class, which is already expanding faster than any other income group, is expected to feel this relief the most in its monthly budgets, as much as 7-8% in Urban India and 5-6% in rural areas. However, this is subject to how much India Inc is willing to translate the benefits to the customers.
In its biggest reset since 2017, the GST Council scrapped the 12% and 28% slab and shifted most mass-consumed items into either the 5% or 18% bracket, effective Sept 22. With the Modi government’s GST 2.0 and income tax relief as provided under Budget 2025, the winner is clear: The aam aadmi, also known as India’s middle class.
What has changed for the three pillars of household budgets
Everyday kitchen staples such as UHT milk, paneer, pizza bread, rotis and parottas are now tax-free, while butter, ghee, cheese, jams, sauces, dry fruits, biscuits, chocolates, cornflakes, soups and ice cream have dropped to 5% from 12–18%. With food inflation already negative, families are set to feel a tangible cut in monthly grocery bills.
“The GST reset could offer some relief to middle-class budgets. For instance, the GST on packaged food items like namkeens and biscuits has been reduced from 18% to 5%, making a ₹100 grocery basket nearly ₹11 cheaper. Similarly, personal care products such as shampoo and toothpaste now attract just 5% GST, down from 18%, which may result in modest saving for a typical family. These changes may ease monthly outflows and could influence consumption patterns for everyday essentials,” said Abhishek Jain, Partner and National Head – Indirect Tax, KPMG in India.
This also comes amid consumption in India seeing an uptick as NielsenIQ data showed sales of packaged foods, cleaning items and personal care products rose 6% by volume in Q1 FY26, up from 5.1% in the previous quarter, momentum that GST 2.0 could reinforce.
On the clothing side, fabrics and apparel up to ₹2,500 now attract 5% GST instead of 12%, offering festive-season relief for middle-class wardrobes, though apparel above ₹2,500 will face 18%, which industry bodies flagged as a setback for winter wear.
Housing inputs like cement and paints have moved to 18% from 28%, a change real estate leaders hailed as a “festive bonanza.” “The GST cuts on key inputs like cement and steel could marginally lower construction costs, potentially improving the viability of housing, particularly affordable housing in Tier 2 & Tier 3 cities and supporting growth in the housing and allied retail segments,” KPMG’s Jain said.
"As households find relief in their everyday expenses, we can expect to see renewed optimism in the market, increased footfall in retail spaces, and greater momentum in housing uptake—each contributing to a more vibrant and resilient economy," said Achal Chawla, Tax Partner at EY India.
But why is the middle class’ win the economy's win?
The timing matters. Oxford Economics predicts that emerging-market middle classes will double in the next decade— expanding from 354 million households in 2024 to 687 million by 2034. By 2029, two in every three middle-class consumers are expected to be from Asia. The biggest increases will come from China, India, Indonesia, the Philippines and Vietnam.
For now, let’s focus on India and what’s coming.
According to a report by the People Research on India’s Consumer Economy (PRICE) in 2023, India’s middle class is the fastest-growing segment of the population, expanding at 6.3% annually between 1995 and 2021.
It represented 31% of the population as of 2023, projected to rise to 38% by 2031 and 60% by 2047, that is over one billion people. “Growth in income will transform India from an aspirers-led economy to a truly middle-class driven one -- growing from $2.2T in 2021 to $7.1T in 2031 -- and consumer spending rising from $1.9 trillion to nearly $5.2 trillion by 2031,” the report said.
Also Read: Trump’s tariff pains, Modi’s GST relief: Govt gives a reform armour to every Indian
The implications are visibly there. By 2030, India is expected to add 75 million middle-class households and 25 million rich households, with these two categories together accounting for 56% of the population. Rising incomes are set to push consumer spending from $1.9 trillion in 2021 to nearly $5.2 trillion in 2031, with middle-class households alone driving more than half of incremental demand.
Beyond relief: A structural shift, focus on savings
Against these numbers, GST 2.0 provides immediate spending relief while reinforcing a longer-term structural shift. For households that have only recently moved from subsistence to security, even small savings on food, clothing, and housing inputs translate into greater discretionary spending.
EY India's Chawla expects a 5 to 6% reduction in monthly budget for rural areas while, in urban households this might be slightly higher, in the range of 7 to 8% in terms of real savings for families.
“The rate rationalisation and exemptions announced in the 56th GST Council meeting are expected to yield measurable relief in household consumption expenditure across income groups. For middle-income households (annual earnings ~₹8–10 lakh), the estimated annual saving is in the range of ₹25,000–30,000, representing a similar 3–4% reduction in effective consumption tax incidence. These savings, coupled with the exemption of life and health insurance and simplification of the GST rate structure, will enhance disposable income, improve affordability of essential goods and services, and support demand-led growth,” Chawla told ET Online.
Also Read: GST- Once branded Gabbar Singh Tax, it turns out to be Good and Simple Tax
That is why the Modi government’s reset is being viewed as not just a festive gift but also a move that aligns taxation policy with the country’s evolving income pyramid. KPMG's Jain noted that there may be a short-term uptick in consumption, particularly among middle-income groups with essential goods becoming more affordable under the revised GST rates. "Over time, any cumulative savings could either support discretionary spending or contribute to household savings, depending on broader economic sentiment and individual financial priorities."
The big question now is whether lower GST will spark higher consumption or translate into savings. Modi & Co have pitched the reforms as a Diwali gift, but the real impact depends on how India Inc chooses to pass on the benefits to consumers.
“The reduced GST rate is likely to spur immediate consumption. Especially with the festive season approaching, one would see a spur in the selling of motor vehicles, air-conditioners, television sets, projectors etc. Further, the long-term economic impact will hinge on several factors, including effective and transparent implementation of GST 2.0 in terms of speedy refunds, relaxation in provisions on discounts, rate cuts reaching the end consumers etc.,” said Harpreet Singh, Partner, Indirect tax at Deloitte.
Meanwhile, as per a report by ET in August, FMCG companies were said to be preparing to pass on the benefits quickly by restoring grammage in ₹5 and ₹10 packs, reversing the shrinkflation trend of the past two years. “Relevant grammage which had to be taken off will come back in packs very quickly; we will work on adjustment in weight, particularly for small packs,” Akshay Bector, MD of Cremica Food Industries, had told ET earlier.
A Policy Trio: Tax reforms, RBI rates and inflation falling in sync
The GST relief comes on the back of two other big steps this year. In Budget 2025, the government extended income tax relief by widening slabs and easing the burden on salaried taxpayers.
Soon after, the Reserve Bank of India delivered a gradual 100-basis-point cut in policy rates, the sharpest in recent years, lowering borrowing costs for home loans, vehicles, and credit.
Macro indicators are moving in tandem. CPI inflation fell to 1.55% in July 2025, its lowest since June 2017, while food inflation entered negative territory at -1.76%, signaling softer price pressures. At the same time, GDP growth of 7.8% in Q1FY26 has surprised on the upside, giving the government headroom to push consumption and private investment. As per FinMin, the share of private consumption in nominal GDP increased from 60.2 per cent in FY24 to 61.4 per cent in FY25. This marks the second-highest level in the last 20 years, indicating sustained strength in consumption demand across the country.
Also Read: GST 2.0 trigger throws up over 90 stock ideas as rate cuts may spark new market cycle. Full list
Together, this policy trio: Income tax cuts, interest rate relief, and GST restructuring, aligns fiscal, monetary, and structural measures in a way that directly touches household budgets and supports wider economic activity.
In all, GST’s timing has been nothing short of a Bollywood hero's entry. With income tax cuts, cheaper loans and inflation easing, the common man might be walking into this festive season with more money in hand and more choices on the table. The climax, though, will be written by India Inc.
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