The 56th meeting of the GST Council, held in New Delhi on 3 September 2025, introduced a series of reforms aimed at simplifying the tax structure and making essential goods more affordable for the general public. Among the most significant changes were those impacting the Fast-Moving Consumer Goods (FMCG) sector. While the revised GST rates for most services and goods are proposed to come into force from 22 September 2025, the GST Council has decided to defer the implementation of revised rates on pan masala, gutkha, cigarettes, chewing tobacco products, etc. until a later date to be notified. This deferment is intended to discharge loan and interest payment obligations under the compensation cess account.
- Simplification of GST Structure
A key reform was the rationalisation of the GST rate structure transitioning from a four-tier system to a simplified two-rate structure: (1) standard rate of 18% and (2) merit rate of 5%. A special de-merit rate of 40% is proposed for selected goods and services. The introduction of a two- rate structure has led to significant rate reductions across various sectors, with a focus on benefiting the common man, labour-intensive industries, farmers and agricultural sector and healthcare, which are key pillars of the economy.
- Reduction in GST Rates on FMCG Products i.e., on everyday essentials and packaged products
For the FMCG sector, the GST Council has approved substantial GST rate reductions on a wide range of products that form part of daily consumption and essential items. Products such as hair oil, toilet soap bars, shampoos, toothbrushes, toothpaste, kitchenware, which were previously taxed at 12% or 18%, will now attract a reduced GST rate of 5%.
- Food and Beverage Segment
In the food and beverage segment, which constitutes a significant portion of FMCG sector, the GST Council has approved a reduction in GST rates from 12% or 18% to 5% on a wide range of products such as packaged namkeens, bhujia, sauces, pasta, instant noodles, chocolates, coffee, preserved meat, cornflakes, butter, ghee, etc. Additionally, Ultra-High Temperature milk and pre-packaged paneer have been exempted from GST, along with Indian breads such as chapati, roti, paratha and parotta. On the other hand, aerated drinks and energy drinks have been moved to the 40% GST slab, consolidating the highest rate for non-essential beverages.
- Input Tax credit (ITC):
Post 22 September 2025, ITC shall not be available on exempt supplies in accordance with the provisions of the GST law. ITC will be available on inputs, input services, and capital goods in respect of outward taxable supplies if made on or before 21 September 2025.
- A registered trader who has purchased goods at a GST rate of 18% or 12% and made supplies at the reduced rate of 5% effective from 22 September 2025, is not eligible for a refund of accumulated ITC under the inverted duty structure. This is because the accumulation is solely due to a rate change on the same goods. Such scenario does not qualify for refund under inverted duty structure. The same has been clarified vide CBIC Circular No. 135/05/2020-GST dated 31.03.2020.
- Businesses have around 15-20-day transition period to prepare for the GST rate changes effective from 22 September 2025. During this time, they must ensure compliance with key requirements such as reversal of ITC, treatment of common input services under the Input Service Distributor (ISD) mechanism, and other related adjustments. Timely preparation is essential to avoid compliance issues and ensure a smooth transition to the revised GST framework.
- The companies must ensure that post sale discounts are provided through issuance of credit notes in accordance with the proposed amendments to Section 34 and Section 15(3)(b) of the Central Goods and Services Tax Act, 2017 ('CGST Act').
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