GST 2.0 Becomes The ‘Great Savings Tax’ As Modi Government Cuts Rates On Essentials

Once dubbed the ‘Gabbar Singh Tax’ for squeezing household budgets, the Goods and Services Tax (GST) has undergone its most sweeping reform since its 2017 rollout.

Branded GST 2.0, the new regime shifts most mass-consumed items into the 5% or 18% bracket, replacing the 12% and 28% slabs.

Effective from September 22, 2025, this reset aims to ease costs on everyday essentials, clothing, and housing inputs, delivering what the government calls a ‘festive bonanza’ to the middle class.

Everyday staples such as UHT milk, paneer, pizza bread, rotis and parottas are now tax-free, while butter, ghee, cheese, jams, dry fruits, chocolates, biscuits, soups and ice cream have moved down to 5% from 12–18%.

According to KPMG’s Abhishek Jain, a ₹100 grocery basket could become nearly ₹11 cheaper. Personal care products like shampoo and toothpaste now attract just 5% GST, reducing household outflows further.

Lower Costs for Housing Inputs

Cement and paints, two key construction inputs, now fall under the 18% bracket, down from 28%.

Experts believe this cut could marginally lower construction costs and improve the viability of housing projects, especially in Tier 2 and Tier 3 cities.

“As households find relief in their everyday expenses, we can expect greater momentum in housing uptake,” says Achal Chawla, Tax Partner at EY India.

EY estimates a 5–6% reduction in rural monthly budgets and up to 7–8% in urban areas if businesses pass on benefits swiftly.

Analysts say these savings could either fuel discretionary spending or support household savings. Deloitte’s Harpreet Singh expects a short-term consumption surge, especially in festive-season sales of consumer durables and vehicles.

The GST reset complements recent income tax relief and the RBI’s 100-basis-point rate cut. With inflation falling to 1.55% in July 2025 and GDP growth at 7.8% in Q1FY26, the government hopes this policy trio will boost demand-led growth.

Whether GST 2.0 delivers lasting savings or just a festive spike will depend on how quickly the industry translates tax cuts into lower prices for consumers.

Also Read: Industry Leaders Hail GST Reforms As Transformative Step