It’s not very often that a tax tweak hits the sweet spot equally for both businesses and the aam aadmi. Yet on September 22, India’s new GST reform did just that, rippling through everyday life, making essentials — from a bar of soap to healthcare, housing and even your daily commute — more affordable for the common man, while unlocking, at the same time, fresh windfalls for entire swathes of industry.
The Modi government has bet on a single reform to reshape India’s consumer economy at a time when the country faces potentially crippling tariffs, thanks to Donald Trump.
Centre has pitched GST 2.0 as both a consumption booster and a simplifier. Finance Minister Nirmala Sitharaman said the rejig will leave more money in the hands of consumers by shifting most goods from higher tax brackets to lower ones. The expectation, she noted, is that everyday essentials — from food and toiletries to two-wheelers and appliances — will become more affordable, spurring demand.
At the same time, this big-ticket reform also sets the tone for its industries’ growth outlook moving forward, offering targeted relief across five key sectors: FMCG, automobiles, housing, insurance and hospitality.
To understand how this shift plays out on the ground, ET Online took a closer look at what these sectors are set to gain from PM Modi’s ‘Diwali Bonanza’.
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Also read: Modi’s Diwali gift unwrapped: GST reset kicks in, easing pressure on your walletFMCG: More power to both buyers & sellersCrisil Intelligence, in its report on GST 2.0’s impact on consumption, notes that the new rates will benefit 11 of the top 30 consumption items across rural and urban areas, covering about a third of an average consumer’s monthly expenditure.Essentials like ultra-high-heat milk, butter and ghee have moved into the lowest-to-nil tax slabs, while processed foods and personal care services — categories that have seen growing demand over the past decade — also enjoy either nil or GST reduced to just 5%, down from the previous 18% levy.
“Reducing the rates of these essential items to the lowest slab should help boost purchasing power. Global evidence confirms that pass-through of tax changes varies significantly across countries. Furthermore, the adjustment can take time. For India, we expect the impact of GST cuts on consumption to play out over this fiscal and the next,” the report states.
The reductions are expected to make a tangible difference to household budgets. Items that were previously taxed above 5% are now fully or partially exempt, while processed foods, toilet articles and personal beauty services have seen rates drop to 5%. These goods account for roughly 28% of rural MPCE and 26% of urban per capita expenditure, highlighting how deeply the changes affect everyday spending. Even modest tax cuts in such high-frequency categories can translate into meaningful savings for low- and middle-income households.
While the new GST rates are already in effect, companies still need to ensure the benefits are passed on, promptly and regularly.
“As rate notifications are now being released, it is imperative for industries to align their ERP systems, pricing decisions and supply chain,” PTI recently quoted Saurabh Agarwal, partner at EY, as saying. “This strategic alignment is critical to ensure a smooth implementation and, crucially, to guarantee that the benefits are effectively passed on to the end consumer.”
Also read: GST 2.0 in action: How govt made Diwali savings real for consumers
Automobiles: Acche din roll inThe automotive sector is already feeling the impact of the new tax framework, with entry-level cars and two-wheelers seeing some of the most tangible benefits. Small cars under four metres in length with petrol engines below 1,200 cc and diesel engines under 1,500 cc will now attract 18% GST, down from total levies of 29–31%.
For example, at Maruti Suzuki, S-Presso’s base variant will now start at Rs 3.49 lakh, even lower than its launch price in January 2020 of Rs 3.70 lakh.
Partho Banerjee, senior executive officer (marketing and sales) at Maruti Suzuki, told The Economic Times: “There are additional festive offers of Rs 60,000, which takes the price to Rs 2.9 lakh. There are many customers who want to buy their first car and this is a dream-come-true moment for them.”
Two-wheelers, particularly entry-level motorcycles, are also seeing early signs of recovery. Hero MotoCorp reported a surge in bookings following the revised GST rates’ announcements.
“With GST reset boosting affordability, increase in acreage (in agriculture land) and good monsoons, we expect the momentum to pick up strongly,” Ashutosh Verma, chief business officer (India business unit) at Hero MotoCorp, told The Economic Times. He added, “The price reduction has been significant. On entry-level bikes, we see an impact of close to Rs 7,000. In January, we made a price intervention on HF Deluxe and we saw the volumes rising sharply. And that intervention was one-third of the intervention that has been done by the government. So, we expect the industry to bounce back significantly.”
After five consecutive quarters of decline, the share of entry motorcycles in total two-wheeler sales inched up to 8.4% in the last quarter ended June 2025.
Experts, however, noted that GST benefits will not be uniform across all automotive segments.
Luxury vehicles, too, will benefit from the GST rationalisation, albeit differently.
Santosh Iyer, MD and CEO of Mercedes-Benz India, told PTI: “The reduction in GST, which has a clear impact on price by 6-8 per cent, would definitely have an impact on demand in the short run, for sure, because there has been a postponement of purchases in August that should get materialised.”
He added, “So, in the next couple of months, we will surely see that the overall luxury market and also Mercedes-Benz should see significant growth. And this festive season should be the best-ever.” Iyer noted that to help cost reduction measures reach the end customer, uniformity in state road taxes, which currently range from 15 to 22 per cent, would be necessary.
Under the new GST system effective September 22, 2025, luxury cars and other large vehicles (over 1,500 cc or 4m in length) are taxed at a flat rate of 40% GST, with the removal of the additional compensation cess. While the GST rate is higher than the previous 28%, the absence of the compensation cess has led to an overall reduction in total tax burden, making such models more affordable.
Iyer also pointed out that India’s luxury car market is growing in line with household per capita income: “In the last six years, we have sold one lakh cars in India, and in the total 31 years, we have sold two lakh. So, the majority of the cars sold in India have come in the last six to seven years. 1.5 lakh cars in the last 10 years since 2014,” he said, adding that sustainable double-digit growth should continue over the next five to ten years.
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Housing: Better deals at better pricesThe real estate sector is among the most visible beneficiaries of GST 2.0, with developers and homebuyers set to see immediate gains.
The GST Council’s decision to cut tax rates on key construction inputs has been hailed as a landmark reform that could transform housing affordability and spur demand in the upcoming festive season.
Cement, a cornerstone of housing projects, now attracts 18% GST, down from 28%, while granite blocks have moved from 12% to 5%, easing input costs for builders and improving project viability.
Pradeep Aggarwal, Founder & Chairman of Signature Global (India) Ltd, told TOI, “By reducing the tax burden, the move comes as a major relief for the common man. The housing sector, particularly, stands to benefit from GST reduction on input materials like cement from 28% to 18% and granite blocks from 12% to 5%, as this will ultimately reduce home prices for consumers and create sustainable demand across segments. This reform gives a major push to the housing sector, making homeownership more accessible for a wider population.”
Other industry leaders echoed the sentiment in their comments to ToI.
Neeraj K Mishra, Executive Director at Ganga Realty, called the move “historic and highly progressive,” adding, “This reduction will lower construction costs, revive demand, speed up project completions, and take us closer to the dream of ‘Housing for All.”
Akash Kohli, Founder & CEO of Elante Group, described it as “truly a Diwali gift for the real estate sector. A 10% reduction will significantly lower construction costs, enabling us to pass on nearly 60% of the savings to homebuyers. This festive boost will enhance affordability and brighten housing dreams for many families.”
Niranjan Hiranandani, Chairman of Hiranandani and NAREDCO National, told TOI the reform was a “festive bonanza for Indian consumers and a strategic boost for the economy,” noting that easing construction costs will accelerate infrastructure projects and create a multiplier effect on GDP growth.
Also read: Queues at car dealers, online carts piled high on Day 1 of GST 2.0 launch
Insurance: Long-awaited reliefThe GST Council’s decision to exempt individual life and health insurance premiums from the 18% Goods and Services Tax is being described as one of the most consumer-facing reforms of GST 2.0. This change will directly reduce out-of-pocket expenses for policyholders, reshape affordability and expand access to financial protection at a time when medical inflation is running in double digits.
At first glance, the relief looks straightforward: a Rs 1,000 base premium that earlier cost Rs 1,180 with GST will now only cost Rs 1,000. But the savings part could be a bit nuanced. Former LIC member Nilesh Sathe told ETWealth that insurers used to claim input tax credit (ITC) on expenses like agent commissions, reinsurance and administration. With full exemption, this benefit disappears, meaning insurers may either absorb the hit through thinner margins or adjust base premiums upwards. Even then, Sathe noted, “you still save, but closer to, say 15%.”
Industry voices say the move could be transformative. Samir Shah, Executive Director and CFO, HDFC ERGO, told ETWealth the step “perfectly aligns with IRDAI’s ambition of achieving ‘Insurance for All by 2047.’” Lowering the cost barrier, he argued, will draw more Indians into the insurance net.
The impact may go beyond affordability. Saurabh Vijayvergiya, Founder and CEO of Coversure, told ETWealth that lower premiums could attract younger, healthier customers into the pool, which “in turn strengthens the insurer’s ability to honour claims.”
For savings-oriented life products, the benefit shows up not in lower premiums but in improved returns. As per ETWealth’s report, the full investment amount now goes into the policy, boosting maturity values and internal rates of return. Given the dominance of such products in LIC’s portfolio, the long-term impact could be significant.
Still, experts cautioned that the ultimate benefit depends on how insurers reprice their products. Large players may choose to absorb the lost ITC and pass on the full relief, while smaller insurers may struggle. Transparency, therefore, will be key in ensuring that the reform delivers on its intent of cheaper protection and higher returns for millions of Indians.
Hospitality: Cheaper rooms, fuller hotelsFor India’s hospitality sector, GST 2.0 could not have come at a more opportune moment. Starting September 22, hotel rooms priced at Rs 7,500 or less per night have shifted from the 12% slab with input tax credit (ITC) to 5% without ITC — translating into savings of up to Rs 525 per room per night for travellers. For guests, the relief is immediate; for hotels, the cut promises fuller rooms, higher occupancies and a stronger festive-season boom.
Industry leaders see the move as a catalyst for growth in the mid-market and budget segments, which form the backbone of Indian tourism.
“We welcome the GST Council’s decision to rationalise hotel accommodation tax rates for rooms up to Rs 7,500. This will make quality hospitality more affordable for India’s growing middle class and further boost domestic tourism demand,” Nikhil Sharma, MD and COO (South Asia) at Radisson Hotel Group, told PTI.
He added that easing the upfront tax burden provides much-needed clarity for hotel operators and travellers, enabling long-term planning and reinforcing confidence in the industry’s growth trajectory.
Global and Indian hotel chains alike are eyeing Tier 2 and Tier 3 markets, where demand is being fuelled by value-conscious travellers. Rahool Macarius of Wyndham Hotels & Resorts told PTI that the reform “comes at exactly the right time” and will be most significant in the mid-market space where India’s expanding middle class is driving demand.
K Syama Raju, president of Federation of Hotel & Restaurant Associations of India, told ET that the cut will “directly boost tourism demand, increase occupancy and encourage more spending across the hospitality value chain,” calling it a step that strengthens the sector’s role as one of India’s biggest job creators.
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as a Reliable and Trusted News SourceTravel platforms are already reporting a surge in searches and bookings, with MakeMyTrip’s co-founder and Group CEO Rajesh Magow telling ET that the timing of the GST cut, overlapping with Navaratri and ahead of Diwali, is likely to “directly influence last-minute decisions, giving a boost to festive season demand.”