GST on FMCG Products: Latest Updates, Rates, and Consumer Insights!
When we talk about buying day-to-day essentials, most of the industries feel the direct wave of the tax regime, especially the FMCG sector. Whether it’s groceries on your kitchen shelf or toiletries in your bathroom, GST on FMCG products plays a big role in deciding what you finally pay at the counter.
Retailers and consumers alike frequently overlook the real impact of GST on FMCG products in their day-to-day purchases. Ever given a thought to why dark chocolates fall under different GST slabs than the biscuits? What makes certain FMCG companies work with thin margins despite steady consumer demand?
The real conversation is about the impact of GST on FMCG products and how it shapes pricing, margins, and consumer choices. A minor revision in GST rates has the potential to disrupt pricing structures, raise distribution expenses, and influence what consumers pay.
The blog will take you through the GST rate on FMCG products, latest updates, and insights you should know. Let’s scroll below to decode the concept.
What is the GST Slab for FMCG Goods?
In the GST regime, FMCG items are grouped across various slabs, ensuring taxation based on product type and consumption pattern. Let’s quickly take a look at applied GST on FMCG products.
| GST Slab | FMCG Items |
|---|---|
| 0% (Nil Rate) | Common essentials like milk, rice, wheat, and naturally fresh vegetables. |
| 5% | Packaged food items like paneer and frozen vegetables. |
| 12% | Butter, cheese, ghee, and dry fruits (expected to become costlier). |
| 18% | Processed foods, soaps, detergents, and shampoos. |
| 28% | Luxury goods such as cosmetics and aerated drinks. |
GST on FMCG Products: Latest Updates
On 79th Independence Day, Hon. PM Narendra Modi proposed GST 2.0, which emphasizes simplified tax slabs, streamlined compliance, and boosts consumption. GST 2.0 proposes to merge the existing four-rate system—5%, 12%, 18%, and 28%—into a simplified two-slab model of 5% and 18%. According to the Business Standard report, 99 percent of items are likely to move in 5% slab, 90% from 28% will move to an 18% slab.
Most of the GST rates are not yet out, but here’s what has been notified.
- FMCG small sachets of less than ₹10 will move to 5% GST rate.
- Toothpaste, detergents, and soaps are likely to observe 5% GST rate.
Which FMCG Companies are Likely to Benefit From GST 2.0?
Pricing Strategy: Decoding the Impact of GST on FMCG Products
Uniformity in Pricing Strategy:
- GST rates have laid the foundation for a unified pricing strategy across the country with the same GST on similar products.
- One MRP for the same product nationwide has eliminated consumer confusion on pricing.
Pricing Bracket Classification
- Essential items like milk, salt, tea, etc., with 0% GST on FMCG products, remain affordable with low pricing.
- Products like soaps, biscuits, or packaged snacks can witness a slight hike in prices with GST ranging between 12% to 18%. However, they can still be used.
- Premium FMCG products like chocolates, aerated drinks, and cosmetics account for 28% GST, which makes it significantly costlier.
Balance Marginal Profits
- Daily essentials like aata, milk, and tea are price-sensitive, where even a rupee’s fluctuation can influence consumers’ buying behavior. In such scenarios, companies absorb the burden of GST on FMCG products instead of increasing the price.
- For premium products like chocolate, aerated drinks, and cosmetics, price variations don’t really matter. So, businesses directly pass on the GST burden to consumers by increasing the MRP.
- This dual pricing strategy helps to balance the growing volumes with marginal pricing.
Pack Size and Pricing Strategy
- With price sensitivity being a key trait of Indian shoppers, even a marginal GST hike on FMCG products can shift demand. They shift to lower brands with comparatively low MRPs.
- Thus, Indian brands introduce smaller-sized packages, such as ₹2 shampoos or ₹5 biscuit sachets. This helps them to keep the products within the reach of everyone despite the higher tax rates.
Additional Read: GST on Clothes, Apparel and Textile Products
Buying Patterns: What is the Impact of GST on FMCG Products?
Stable Buying Pattern:
- Basic essentials like atta, milk, tea, and soaps are taxed at a minimal 0–5% GST rate, which helps maintain affordability.
- Consumers continue to buy these products in bulk and with regular frequency, leaving no impact on the buying patterns and affordability.
Shift to Smaller Packages
- Medium-range FMCG products like biscuits, snacks, and shampoos account for 12% – 18%, and even a slight increase in pricing influences the buying pattern.
- Thus, consumers often purchase smaller sachets of ₹5 or ₹10 to stay within their budget.
Selective Buying:
- GST on FMCG products, accounting for a 28% GST rate, is considered premium. They include chocolates, cosmetics, soft drinks, etc.
- With the highest GST rates applied to these products, the spike in the pricing is also high.
- Thus, consumers either shift to local alternatives or treat them as occasional indulgences rather than purchasing regularly.
Change in Brand Preferences
- With a few branded packaged products being taxed with higher GST rates, the prices for premium products grow aggressively.
- In such scenarios, even the loyal brand consumers switch to local brands, making a shift towards value-for-money.
Boost in Online Purchase and Organized Retail
- The GST regime has eliminated multiple taxes imposed on FMCG products, boosting e-commerce and organized retail.
- Discounts help absorb the GST rate on FMCG products through online channels and retail outlets; thus, consumers are shifting towards these channels.
Let’s Conclude
The impact of GST on FMCG products isn’t just restricted to compliance- it directly affects the pricing strategy, marginal balance, and consumer buying patterns. While the daily essentials become affordable, premium products face selective buying. GST on FMCG products has also innovated sachets, discounts, and smart pricing to handle the rising tax implications.
Also, the latest update on revised GST rates aims to simplify tax slabs on FMCG, ensuring a more consumer-friendly market. What’s your take on this? Do you think GST 2.0 will have any impact on consumer buying patterns? Do let us know in the comments below.
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FAQS of GST on FMCG Products
- Which grocery items have 5% GST?
Packaged paneer, sugar, tea, milk food for babies, edible oils, etc., have 5% GST.
- Is GST on FMCG Products applicable to promotional or sample items?
GST doesn’t apply to free or promotional samples, as they are given out as part of a sales strategy.
- Does the GST rate on FMCG products affect profit margin?
Yes, GST implications impact profit margins. For essentials, brands absorb the GST burden, having very low or no profit margin. For premiums, they pass the GST burden to the end consumer by raising the prices to get a bearable profit.
- Can FMCG Businesses claim ITC on all products?
Yes, FMCG businesses can claim ITCs on most of their taxable products used in manufacturing and distribution.
- According to GST 2.0, which FMCG products are likely to have 40% GST?
Tobacco, aerated drinks, and frozen packaged food can be subject to 40% GST to discourage their consumption.
- Is the GST rate on FMCG products good for consumers?
The impact of GST on FMCG products for consumers is positive as it reduces the burden of cascading taxes, making the products cost-effective.
