Major Relief Expected: Food & Clothing to Come Under 5% GST, Insurance May Go Tax-Free

Decision likely soon – GST Council Meeting Scheduled for September 3–4, 2025

The Indian government is preparing for a major restructuring of its Goods and Services Tax (GST) regime in the upcoming 56th GST Council Meeting on September 3 and 4, 2025 in New Delhi. Under the broader GST 2.0 reform agenda, key proposals include slashing tax rates on essential goods, simplifying tax slabs, and making insurance more accessible. These reforms are not only economically strategic but also geopolitically responsive.

Key Proposals Likely to Be Discussed

5% GST on All Food and Textile Products

Removal of 12% GST Slab

Zero GST on Essentials like UHT milk, paneer, ready-to-eat roti and parathas

Processed Foods GST Slashed to 5%

Cement GST Reduction from 28% to 18%

Zero GST on Personal Life & Health Insurance

Why Now? The Global Trigger: U.S. Tariffs on Indian Goods

These reforms come after years of stagnation, and one major catalyst appears to be former U.S. President Donald Trump’s recent trade policies, where he increased tariffs on Indian imports by up to 50%. This unexpected move has had a ripple effect on India’s trade competitiveness and global market positioning.

India’s Response to U.S. Trade Pressure:

Reviving Domestic Demand: With exports facing new hurdles in the U.S. market, India must now stimulate internal consumption to maintain economic momentum.

Supporting MSMEs in a Tougher Trade Climate: Many small and medium businesses in India export textiles and processed foods to the U.S. A high tariff barrier reduces their competitiveness abroad — pushing the government to make them stronger domestically by easing GST.

Retaliatory and Strategic Reforms: Rather than imposing counter-tariffs, India is choosing to strengthen internal market efficiency through tax simplification, lower consumer prices, and reduced compliance burdens.

Why the Indian Government Is Reducing GST Now

1. Simplifying Tax Structure

Moving food and textiles to a uniform 5% GST removes confusion and legal disputes over classification.

2. Empowering MSMEs

Lower GST rates mean easier compliance, lower costs, and increased demand — crucial for small businesses hit by trade slowdowns.

3. Containing Inflation

Lowering GST on daily-use items helps families cope with inflation, especially in urban and rural low-income segments.

4. Boosting Sectoral Growth

Construction becomes more affordable with lower cement GST.

Insurance becomes more accessible and affordable, expanding financial security.

Final Thoughts

This round of GST reforms — long overdue — seems to be India’s strategic pivot in response to evolving global trade dynamics. With the U.S. becoming a more protectionist market under increased tariff policies, India is betting on self-strengthening through tax simplification, domestic demand stimulation, and MSME empowerment.

If passed in the September 2025 GST Council meeting, these changes could mark the beginning of a more resilient and internally-driven Indian economy.