The Goods and Services Tax (GST) is poised for a major overhaul, with the Indian government planning significant reforms to the indirect tax system. Prime Minister Narendra Modi has announced that the draft for the next-generation GST reforms has been circulated among states, seeking their cooperation for implementation before Diwali. These reforms aim to simplify the GST law and revise tax rates, benefiting the poor, middle class, and businesses. Senior government officials have described the upcoming GST reform as a "game changer," potentially paving the way for a single tax slab by 2047. The GST Council is expected to review the proposal in September.

Key Proposed Changes

The proposed changes to the GST structure include a shift from the current multi-tiered system to a simplified two-slab structure, with rates of 5% and 18%. A special rate of 40% is planned for luxury and demerit goods such as tobacco and pan masala. It is expected that nearly 90% of items currently in the 28% slab will move to 18%, and almost all goods from the 12% category will shift to 5%. Everyday products such as household items and essentials are expected to fall under the lower 5% slab. The government is also looking to implement pre-filled returns to reduce manual intervention and eliminate mismatches, and to enable automated processing of refunds for exporters.

Expected Benefits

These reforms are projected to boost consumption, simplify compliance, reduce disputes over classification, address inverted duty structures, and provide businesses with more predictability. The changes are also expected to shrink the tax arbitrage of the unorganized sector, benefiting organized players. According to sources in the Union Finance Ministry, internal calculations suggest that gross GST revenues under the proposed two-pillar rate structure will not be lower than what they are now.

Stocks Expected to Benefit

Several sectors and companies are anticipated to benefit from these GST reforms. A note from MOFSL suggests that at least two dozen stocks could see gains. These include:

• Fast-Moving Consumer Goods (FMCG): Hindustan Unilever, Britannia Industries, Nestle, Dabur, and Godrej Consumer Products are expected to benefit from a sales boost due to the shift from 12% to 5% GST on certain items.
• Automobiles: Maruti Suzuki India and Ashok Leyland are seen benefiting from a likely reduction in the GST rate from 28% to 18%. Bajaj Auto, Hero MotoCorp, TVS Motor, Eicher Motors, and Maruti could also see increased sales.
• Consumer Durables: Voltas, Havells, Amber Enterprises India, Blue Star, Dixon Technologies, and Whirlpool Corporation may experience a positive impact from the shift from 28% to 18%, making white goods more affordable.
• Retail and E-commerce: Delhivery, Lemontree, Swiggy, V-Mart Retail, and Avenue Supermarkets could benefit from cheaper goods lifting sales.
• Cement: Ultratech Cement, Shree Cement, Ambuja Cement, and Dalmia Bharat may see increased demand in infrastructure and real estate due to lower construction costs if the GST rate is reduced from 28% to 18%.
• Hospitality and Tourism: Indian Hotels Company, EIH, Chalet Hotels, and Lemon Tree Hotels could see a boost in tourism if the GST rate falls from 18% to 12% or from 12% to 5%.
• Financial Services: HDFC Bank, Bajaj Finance, Niva Bupa, Max Life, and HDFC Life may gain. Health insurers and term life-heavy insurers could benefit if senior citizens' policies see reduced or exempted GST rates. Bajaj Finance may also benefit as EMI obligations for consumer durables should reduce, benefiting NBFC lending in this segment.
• Cables and Wires: Polycab and KEI may benefit from the reduction of GST on cables and wires from 28% to 18%.
• Other Stocks: BEL, Tata Motors, DLF Limited, Godrej Properties, Dixon Technologies, Sun Pharma, UPL, Bharat Electronics, TVS Motor, and Coromandel International have also been recommended by experts as stocks to buy in light of the GST reforms.

Potential Challenges and Considerations

While the reforms are expected to be largely positive, there may be some short-term dips in revenue, though these are expected to be offset by higher consumption and better compliance. It is also important to monitor whether companies can translate the GST rate cuts into sustained earnings growth. The GST Council will need to decide how to tax demerit goods once the compensation cess expires in March 2026.