The Goods and Services Tax (GST) Council has introduced some reforms in India’s indirect tax regime by introducing a two-tier structure that will be effective from September 22, 2025. This is described as one of the most significant GST since its inception in 2017. The framework of the new system will assist in simplifying compliance, resolving classification disputes, and bringing new found clarity for Industries across. For the Food and Beverage (F&B) Industry, the decision brings significant shifts, offering both relief as well as new sets of challenges.
Lower Tax on Packaged Foods: Boost for Growth
One of the biggest growth and relief indicators for the F&B Industry is the reduction of GST rates in a wide range of packaged and branded foods. Everyday products such as fruit juices, condensed milk, butter, cheese, biscuits, chocolates, dry fruits, pasta, edible oils, and namkeens will now have a reduced GDP of 5% from the earlier 12% and 18%.
This move is expected to directly reduce input costs for manufacturers and distributors, which could either improve margins or translate into lower consumer prices. With the festive season around the corner, industry experts anticipate a sharp rise in sales volumes. For companies in categories such as snacks and dairy, the relief also provides breathing room to innovate and expand product portfolios.
“The GST rationalisation represents an uplifting change for any startup or emerging brand in the F&B industry, as it promises an easier working life. Up until now, the multiplicity of tax slabs has posed serious troubles for the young entrepreneurs to construct a transparent price structure, to remain in compliance, and to contend with such buying customers who are cost-conscious. Two slabs with 5% for essentials and 18% for anything else enhance the clarity of choice when operating a new venture and deciding on product mix and expansion strategy. Greater transparency reduces compliance costs and gives confidence to investors in scalable F&B models. The product on a lower slab is beneficial for startups, as cheaper products create demand for QSR concepts, cloud kitchens, and packaged foods, whereas premium concepts purchase on the higher slab. Thus, by way of creativity, the reform empowers the ecosystem through ingenuity, credibility, and promising avenues of growth for entrenched players as well as burgeoning entrepreneurs.” Mr Simranjeet Singh, Director, CYK Hospitalities.
Staples Go Tax-Free: Direct Consumer Benefit
Adding to the good news, certain essential foods have been moved to a zero-tax bracket. Products including paneer (chhena), UHT milk, chapati, roti, khakra, and pizza bread will now be tax-free. This measure not only reduces household expenses but also eases the compliance burden on small-scale producers, who were previously struggling with paperwork and thin profit margins.
By removing GST on everyday staples, the Council has signalled its intent to protect the affordability of basic nutrition, ensuring that households across socio-economic segments feel the benefits.
Beverages Face the Heat: 40% GST
On the flip side, the beverage industry has been hit hard. Carbonated soft drinks, sugar-sweetened beverages, and caffeinated energy drinks will now attract a steep 40% GST. Policymakers have justified this hike on health grounds, aiming to curb excessive sugar consumption while bolstering government revenue.
For beverage manufacturers, the change presents a significant hurdle. Companies will have to decide whether to absorb part of the cost increase or pass it on to consumers, risking a fall in demand. Some global players are already considering reformulation of products, reducing sugar content to reposition offerings within healthier segments. While this could align with rising consumer awareness around wellness, it also requires major investment and strategic repositioning.
Clarity Over Classification
One of the most persistent issues under the earlier system was the confusion over classification, with disputes about whether items such as popcorn, paranthas, or paneer should be taxed differently when packaged versus loose. The two-tier structure eliminates such inconsistencies, creating a uniform and predictable framework.
For retailers and SMEs in the F&B space, this simplification will significantly cut down on litigation, compliance costs, and administrative delays. It will also encourage smoother supply chain operations.
“We welcome the government’s bold and progressive GST reforms, which will certainly boost domestic consumption and propel economic growth. Consumption and packaging are directly correlated, and we expect a significant uptick in demand for packaging. With affordability driving growth, we anticipate a surge in smaller and more convenient pack sizes, along with a stronger push for sustainable and recyclable packaging solutions. We see this as an opportunity to partner more effectively with FMCG brands by delivering innovative, high-quality, and eco-friendly packaging that reaches millions of households across India.”Mr. Rajesh Bhatia, Group President (Finance & Accounts) and CFO, UFlex Limited
Reactions from Industry
The broader packaged food sector has welcomed the decision wholeheartedly, citing a boost to affordability, innovation, and expansion. Retailers too are optimistic, anticipating higher consumer demand in the months ahead.
In contrast, beverage players are voicing concern. Industry associations are already in talks with policymakers to seek relief or gradual implementation of the steep 40% slab. Until then, companies may need to explore product diversification, shifting focus toward bottled water, sugar-free alternatives, or dairy-based drinks that remain in lower tax categories.
Consumer Impact
For consumers, the new GST framework is a mixed bag. Essentials and packaged foods are now cheaper, directly benefiting households and likely encouraging higher consumption. However, a sharp hike in sugary drinks could pinch pockets, especially for younger demographics and urban consumers who are the biggest buyers of these products.
Interestingly, this may nudge Indian consumers toward healthier alternatives, a trend already gaining ground. The new regime could accelerate that shift, reshaping demand patterns in the long run.
“The rationalisation of GST for frozen foods and meats is a progressive move that will uplift the entire category. For consumers, it makes nutritious and hygienic options like Godrej Yummiez more accessible, while also promoting smarter food habits by reducing wastage and enabling convenience without compromising on quality. For the industry, it opens up space for greater innovation, wider distribution, and enhanced consumer trust, creating opportunities for all players to expand and serve a fast-evolving market. These reforms will accelerate the growth of frozen foods as a mainstream choice, benefiting both households and the broader food ecosystem” said Abhay Parnerkar, CEO, Godrej Foods Ltd (that owns Godrej Yummiez – ready-to-cook frozen foods brand and Real Good Chicken).
“The new GST reforms mark a pivotal moment for India’s FMCG and food processing industries. By rationalising tax slabs and reducing rates, the government is boosting demand, easing compliance, and supporting homegrown brands. At ZOFF Foods, we see this as a timely, progressive move that allows us to scale faster, innovate more, and offer even better value to our consumers, especially with the festive season ahead. It will also help us accelerate market expansion across Tier 2 and Tier 3 cities, unlocking new growth corridors for the sector at large.” Mr. Akash Agrawalla, Co-founder, ZOFF Foods
Conclusion
The GST Council’s two-tier structure represents a bold attempt to balance simplification with public health objectives. For the F&B industry, it brings long-awaited relief in the food segment, but also new challenges in beverages. How companies adapt by adjusting prices, reformulating products, or leveraging innovation will determine the real winners and losers in this new tax landscape.
As India heads into the festive season, the reduced rates on packaged foods and essentials are likely to boost sentiment and demand, giving the industry a much-needed lift. The coming months will reveal how effectively businesses and consumers navigate this landmark reform.
Sources- The Indian Express ,The Economic Times, and Reuters
