India Strategy : GST 2.0 – Structural Reform to boost demand and economy by Prabhudas Lilladher Capital Ltd
The GOI has announced GST 2.0 which has indicated a reduction in taxes to the tune of Rs480bn and reduction in taxes on wide ranging items of daily use by common man. The measures except tobacco will be applicable from Sept 22 which will help revive festival demand.
There has been steep cut in taxes on Auto, Processed Foods, Personal care, Cement, Ac and durables, Books and Stationery, Hotels (3995mm, cigarettes etc. are placed in 40% bracket. Food delivery services are likely to be taxed at 18% now. We believe that it will boost demand for consumption-oriented companies.
Key Stocks
Staples - ITC, Britannia Industries, Hindustan Unilever, Godrej Consumer Products, Colgate Palmolive (India), Marico, Bikaji Foods International, Emami and Nestle India Apparel/ Footwear – Aditya Birla Lifestyle Brands, Arvind Fashions, Metro Brands Asia, Auto - Bata, Auto, Hero Motocorp, TVS Motor Company, Eicher Motors, Maruti Suzuki India, Mahindra & Mahindra, Hyundai Motor India, Tata Motors, Ashok Leyland, Cement – Ultratech Cement, Ambuja Cement, Shree Cement, JK Lakshmi Cement etc., Life and Health Insurance (Long term), Durables - Blue Star, Voltas, Whirlpool of India, Budget Hotels – Lemon Tree Hotels, Samhi Hotels, Hospitals (cheaper insurance – Apollo Hospitals Enterprise, Max Healthcare Institute, Aster DM Healthcare, Defense – Hindustan Aeronautics, Bharat Dynamics, Bharat Electronics etc.
Key Features of the Reform
* Major structural overhaul of GST, not just rate rationalization.
* Only 2 standard slabs remain – 5% and 18%.
* Special 40% slab introduced exclusively for sin and ultra-luxury goods.
* Simplification: Many items moved from higher to lower slabs to benefit the common man and critical sectors.
* Medical relief: Significant exemptions and zero-rating for life-saving medicines and equipment.
* Ease of living: Focus on consumer goods, agriculture, textiles, renewable energy, and healthcare.
* Uniform treatment: Removal of HS-code based confusion in auto and textile sectors.
* September 22, 2025 – All reforms effective, except sin goods.
* Sin goods (tobacco, pan masala, etc.) – Continue under existing GST + Compensation Cess until repayment of all dues under the compensation cess account (loan + interest)
Common Man Relief – 18%/12% → 5%*
* Household & FMCG essentials: Hair oil, shampoos, toothbrushes, bicycles, other basic household items
* Food items: Namkeen, bhujia, coffee, chocolate, sauces, pasta, instant noodles, ghee, preserved meat, etc
* Daily staples: Ultra-high temperature (UHT) milk, Indian breads, paneer, etc.
Agriculture & Rural Economy
* Tractors, agri-horti & forestry machines, harvesting equipment etc
* Biopesticides, natural menthol, handicrafts, marble, intermediate leather goods.
* Fertilizers & chemicals: Sulphuric acid, nitric acid, ammonia (shifted from 18% → 5%).
* Renewable energy: Biogas plants, windmills, waste-to-energy plants, PV cells/modules, solar cookers, water heaters, etc
* Man-made textile sector: Finished goods (18% → 5%), yarn (12% → 5%) – ensuring fibre neutrality
Higher Goods Rationalized – 28% → 18%
* Consumer Durables: Air-conditioners, all TVs, dishwashers, household machines, etc.
* Automobiles: Small cars, motorcycles ≤350cc, buses, trucks, ambulances, 3- wheelers.
* Building Material: Cement (boost for affordable housing).
* Auto Parts: Uniform 18% slab across all HS codes.
Special Reductions for Social Impact
* 12% → 0%: 33 life-saving medicines.
* 5% → 0%: Cancer & severe chronic disease drugs, diagnostic kits, critical medical equipment etc.
* 28% → 5%: Spectacles and goggles.
Special 40% Slab (Sin & Ultra-Luxury Goods)
* Tobacco & related products: Pan Masala, Gutkha, Cigarettes, Chewing Tobacco, Sarda, Unmanufactured Tobacco, Bidi etc
* Beverages: Aerated waters with added sugar, flavored/caffeinated/carbonated drinks (except those in low slabs).
* High-end consumption: Mid-size & large cars, motorcycles >350cc, yachts, vessels, private aircraft.
* Levy mechanism: Retail Sale Price (RSP) based GST instead of transaction value (for tobacco & pan masala) – ensuring higher revenue capture.
Services Exemptions
* Insurance: All individual life insurance policies (term, ULIP) exempt. Health insurance policies, including those for senior citizens is exempt.
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