Major GST Overhaul: Tax Relief on Processed Foods
In a landmark decision, the GST Council has simplified India’s tax structure, bringing significant relief to consumers and the food processing industry. Effective September 22, 2025, the previous four-slab GST system (5%, 12%, 18%, and 28%) has been streamlined into two main rates: a 5% “merit rate” for essential goods and an 18% “standard rate”. A special 40% rate has also been introduced for luxury and sin goods.
Staple foods will now be tax-free, while most processed food items will see their GST rate reduced to 5%. This reform is expected to lower prices for consumers and boost the economy.
Key Benefits of the New GST Structure
This rationalization of tax rates is set to create a positive cycle of economic growth.
- Affordable Prices & Increased Demand: With GST rates on many processed foods dropping to 5%, consumers will see a direct reduction in prices. This increased affordability is expected to boost sales for the FMCG and packaged food industries, stimulating demand and consumption.
- Simplified Tax Compliance: The new, simpler two-tier structure makes it easier for businesses to understand and comply with tax regulations. This reduces administrative costs and frees up capital for investment and growth.
- Boost for Domestic Manufacturing: The new rates correct the “inverted duty structure,” where raw materials were taxed at a higher rate than the finished products. This change will improve liquidity for small and medium-sized businesses (MSMEs) and encourage domestic value addition.
- Fewer Disputes: By aligning similar products under the same tax bracket, the new system reduces classification disputes and costly legal battles for businesses. For example, the tax difference between packaged and loose paneer or parathas has been eliminated.
- Increased Employment & Farmer Income: The anticipated rise in demand and investment is expected to create new jobs in the food processing sector. This growth, along with better post-harvest infrastructure, is projected to increase incomes for farmers and food processors.
GST Rate Changes for Major Processed Foods
Here are some of the key processed food products that will now be taxed at the reduced 5% rate:
- Dairy: Condensed milk
- Nuts & Snacks: Almonds, namkeens, bhujia, and similar savory snacks
- Sweets & Confectionery: Sugar boiled confectionery, chocolates, cocoa products, ice cream, cakes, biscuits, and pastries
- Packaged Foods: Pasta, noodles, soups, jams, sauces, and juices
- Beverages: Soya milk drinks and other plant-based milk beverages
In a major move, Ultra-High Temperature (UHT) milk will become tax-free.