GST simplification raises stakes for festive marketers

When the Goods and Services Tax (GST) Council met for its 56th session, the agenda was unusually sharp: simplify the indirect tax structure and spur consumption. The outcome—a rationalisation into two primary slabs to 5% and 18%, a steep 40% rate for demerit goods, and sweeping relief measures—signalling a clear pivot towards boosting demand as the festive season begins.

With the new rates effective 22 September, coinciding with the first day of the Navratri festival, the Council has not only handed households a breather but also reset expectations for brands, and marketers heading into the busiest sales window of the year.

The revised slabs—NIL, 5%, 18% and 40%—replace the earlier patchwork of rates that often confused both businesses and consumers. Many mid-range durables and small cars now fall into the 18% bracket, lowering their effective prices. Tobacco and luxury products now move into the newly created 40% demerit category. From soaps to cement, and even footwear, the recalibration touches everyday household budgets as well as discretionary spending categories.

For marketers, the tax reset is not just an economic policy update; it is a fresh variable in consumer psychology. The prospect of cheaper goods at the checkout could reframe how shoppers weigh discounts versus tax cuts this festive season, a subtle but important shift in perception that advertisers will need to track closely.

Relief on essentials, squeeze on luxury

The Council’s decision to slash rates across consumer goods has been welcomed by industries that rely heavily on price-sensitive demand. Post-sale discounts are now permitted through credit notes with corresponding Input Tax Credit (ITC) reversal, easing compliance burdens for retailers and brands. A simplified registration scheme for small and low-risk businesses, including e-commerce suppliers, adds to the effort to widen participation in the formal economy.

Mukesh Ambani, chairman and managing director of Reliance Industries Limited and Reliance Retail called the GST rationalisation a progressive step towards making products and services more affordable for consumers, easing operational complexity of doing business, lowering inflation and driving consumption growth across the retail sector.  “This will serve as a big booster to India’s economic growth. With GDP growth rate having reached 7.8% in the first quarter of this financial year, the new reforms have the potential accelerate the economy even further, raising the growth rate closer to double digits,” he added.

Seconding this, Himanshu Sinha, partner—tax practice at Trilegal, also framed it as a pivotal reset, which aims to rationalise the tax regime, stimulate consumption, and bolster economic growth. “Significant reductions include essential household goods decreasing from 18% to 5%, and cement from 28% to 18%, providing considerable relief to consumers and the infrastructure sector. Additionally, individual life and health insurance policies now receive a complete GST exemption,” he explained.

He noted that correcting inverted duty structures in textiles and resolving intermediary service disputes through IGST Act amendments will benefit export-driven sectors like IT and consulting, which are facing headwinds due to the traffic imposed by the Trump administration. However, higher rates on inward petroleum supplies could offset some gains.

The government has packaged the changes as an INR 48,000 crore reform, aligning them with income tax benefits in this year’s budget. The combined impact is designed to free disposable income, particularly for middle-class households, and reinforce confidence in a period often clouded by inflationary pressures and job market uncertainty.

Consumer sentiment in focus

The timing of the announcement is deliberate. Prime Minister Narendra Modi first flagged the GST overhaul in his Independence Day address on 15 August, giving businesses three weeks to adapt their IT systems, billing software and point-of-sale machines—an unusually long runway compared to previous rate changes. The phased approach suggests an intent to minimise disruption during a critical sales period.

Nitin Rao, CEO, InCred Wealth, underlined the urgency of the move, lauding that these GST cuts were announced quickly and efficiently with an element of urgency, to boost demand before the crucial festive season. “The focus has been to give support to tariff impacted labour intensive industries, to make goods cheaper. The visible benefits of individual scale will be seen by the middle class in mid-level value purchases and it will improve sentiments post the tariff issues and general slowdown. History has showed that such measures add significantly to GDP growth and a repeat is expected,” he noted.

Indian markets reacted positively to the Council’s announcement, with investors welcoming the streamlined structure and the signal of domestic consumption support, particularly in light of the recent 50% US tariff hike. The simplification is seen as a structural improvement in ease of doing business, but businesses still face the operational task of adapting systems in time for the September rollout.

While the reforms promise immediate relief, the longer-term test will be whether disposable income actually converts into sustained consumption. Inflationary pressures, global uncertainties, and consumer risk-aversion could temper the impact. The Council’s bet is that the combined force of rate cuts, budgetary tax relief, and festive sentiment will outweigh these headwinds.

Rao injected a note of caution, pointing out that previous tax cuts had not fully translated into consumption revival. “We will have to wait and see if this welcome third step reverses the consumption trend or there is a deeper problem around availability of money with consumers. For now, the market sentiments will be positive,” he stated.

Industry responses: Footwear to advertising

The footwear sector, often under pressure from unorganised players, sees direct benefit from the cut. Sachin Joseph, executive vice president—a marketing and IT at Paragon Footwear, said that this move will make quality footwear more affordable for the common man and the middle class while also giving a strong boost to domestic demand.

“For an industry that is highly labour-intensive and a vital part of India’s manufacturing economy, the reduction provides timely relief and helps organised players like us compete more effectively with unorganised markets,” Joseph noted.

The advertising industry, too, is eyeing the shift with interest. Prashant Puri, co-founder and CEO, AdLift, called the overhaul a “landmark reset for India’s consumption and advertising story.”

He said that by collapsing the erstwhile four slabs into 5% and 18%, with a 40% bracket for sin and luxury items, the government has not just simplified compliance but also injected fresh consumer confidence. “Everyday essentials becoming cheaper, along with GST-free life and health insurance premiums, frees up household budgets,” he said.

Puri added that the timing could expand advertising expenditure (AdEx), particularly in FMCG, consumer durables, and automobiles: “The timing, just ahead of the festive season, means we could see a sharper-than-usual spike in AdEx. Simplification also helps SMEs and regional brands, who may now find it easier to formalize operations and invest in marketing.”

On digital advertising, Keshav Soni, founder of Ad-Scent, observed that the upside looks sharper still. With budgets being redirected, marketers are expected to prioritise outcome-linked formats—performance ads, online video and creator-led activations chief among them.

“The shift points to a more diversified advertising landscape, where the advantage tilts to those able to fuse analytics with creative agility in the race for consumer attention,” Soni explained.

The festive economy lens

For many categories—FMCG, electronics, durables, fashion and automobiles—the September-to-December window can account for as much as 40% of annual sales. Marketers traditionally bank on this quarter to recover sluggish demand from earlier months. The GST reset effectively hands them another lever to stoke consumption alongside traditional levers such as promotions, financing schemes, and digital activations.

Tamanna Gupta, Founder of Umanshi Marketing, described the move as timely, saying that the government just dropped its festive hamper. In her opinion the GST slab change was a much-needed reform, especially with consumer sentiment in the doldrums amid a sluggish economy, widespread layoffs and on-going global uncertainties.

“The lower and middle class is most hit by taxes on essential items. The hit further adds to inequality. GOI’s move should free up disposable income and lift sentiment just as the festive season begins. Festive 2025 will reward brands that acknowledge financial caution while still delivering moments of indulgence,” Gupta stated.

The intersection of tax policy and consumer behaviour means brands must now gauge how much of the price relief will be absorbed by retailers, and how much will be passed on to consumers. For marketers, the difference could dictate whether consumers view festive offers as genuine savings or simply repackaged benefits.

As the first day of Navratri approaches, both households and marketers are recalibrating expectations. For shoppers, the question is whether a cheaper soap, shoe, or small car will translate into a little more room in the monthly budget. For brands, the calculation is whether the GST cuts can unlock a surge in festive buying powerful enough to justify fresh rounds of advertising and promotional investment.

The GST Council’s overhaul has simplified more than tax brackets—it has set the stage for a test of consumer sentiment at a time when marketing calendars peak. If shoppers see tangible savings at checkout, it could trigger the consumption-led recovery policymakers are hoping for. If not, the cuts may still be remembered less as a festive windfall and more as a reminder of the gap between intent and household reality.

Either way, this festive season will serve as the first litmus test of India’s new GST regime, with brands and marketers watching every receipt as closely as consumers.