GST Reforms: Booster Shot For D2C Startups, New-Age Brands?

India’s biggest overhaul of the Goods and Services Tax (GST) since the 2017 rollout has reset the playing field for businesses, from traditional FMCG giants to emerging D2C brands. 

At its 56th meeting this week, the GST council, chaired by finance minister Nirmala Sitharaman, cut down the four-tier structure (5%, 12%, 18%, 28%) down to two slabs, while introducing a steep 40% bracket for select luxury and sin goods.

Of the 453 goods that saw revised rates, 413 became cheaper, with essentials taking centre stage, with nearly 295 products earlier taxed at 12% now falling into the 5% or nil bracket. Economists expect the move to spur consumption and ease core inflation. 

Soumya Kanti Ghosh, group chief economic advisor at State Bank of India, estimates Consumer Price Index (CPI) inflation could decline 25-30 bps in FY26, assuming a 60% pass-through of the savings on food. 

So, on the D2C and retail front, the question is to what extent companies will pass on the savings. For D2C startups and retail brands, this reform is less about rate cuts and more about competitive positioning. 

Lower taxes on essentials may widen their share of the consumer wallet, but they also sharpen the pricing edge of established FMCG players with scale.

The critical question now is not whether GST will lower inflation, but whether consumers will actually see meaningful price drops on shelves and how young D2C brands can leverage this window to strengthen their market share.

D2C Brands To See Price Cuts

First things first, will the end users actually see a price drop? The answer is yes. Founders and financial advisors, Inc42 spoke to say that lower MRPs are inevitable, with changes expected to roll out in phases once the GST reforms take effect on September 22, 2025.

Brands will have to ensure compliance with the GST law’s anti-profiteering provisions, which strictly mandate that any benefit from the reduced tax must be passed on to consumers, with penalties for non-compliance.

FMCG giants, including HUL, P&G, Nestle India have been penalised in the past. 

Besides, consumers will naturally gravitate towards those brands that have reduced the MRP.  As a Mumbai-based D2C founder said, “In a value-conscious market, if one brand reduces prices, they will be able to grab a larger share of the market. Others will inevitably follow.” 

Another D2C-funded startup founder echoed the sentiment, noting that while some brands may take longer than others, the changes in MRP can be expected within 3-4 months if not a few weeks.

Another founder suggested that some brands might absorb the rate cuts to use them for marketing or to boost margins in the short term, and pass on the rest to the consumers.

Rather than passing on the entire GST benefit upfront, they may choose to transfer around 70% to consumers while retaining the remaining 30% in the initial months. This retained portion could either be added to their margins to reflect stronger profitability or earmark it for marketing efforts to boost visibility.

But There’s A Caveat

If a lot of that seems circumspect that’s because D2C founders are also caught up in a dilemma at the moment. Most are still trying to decode the reforms. The current information provides only broad guidance, and without product-specific details, execution remains murky.

“We are only seeing broad categories under revised slabs, but to apply this correctly, we need clarity at the HSN code level,” one founder said. Another pointed out that even CFOs are struggling, as the government has yet to publish the fine print. Until those details arrive, founders are operating in a grey zone, unsure which SKUs qualify for lower GST and how to reflect the price change.

This is why most D2C founders Inc42 spoke to requested anonymity while commenting.

Complicating matters further is the issue of existing inventory. Most D2C brands work with a 40-day inventory cycle, but during festive seasons, many expand inventories to 90 days, with products either on retail shelves or locked in ecommerce warehouses. 

With the reforms kicking in on September 22, founders are worried about how unsold stocks will be handled, especially when consumers will expect lower prices.

Some brands are already planning a tactical workaround. Akash Agarwal, founder of Zoff, suggested that some brands, instead of passing an entire 13% GST cut to consumers initially, may pass on 8-10% and use the remaining margin to discount older inventory. 

Others argue that the burden of clearing existing stock with the older sticker prices will fall squarely on brands, who will have to bear the discount costs while ensuring full compliance with GST’s anti-profiteering rules.

The logic is straightforward. When two identical products sit on a shelf at different prices, the lower one always wins. That leaves D2C brands with little choice but to absorb the hit, at least in the short term.

Even the government has acknowledged this transition pain. The Central Board of Indirect Taxes and Customs (CBIC) has indicated that businesses will receive guidance on how to handle goods already sourced and lying in warehouses. A government official told TOI that unsold stock post September 22 must be sold at a new tax rate, but assured that businesses will be able to claim credit for the differential.

Can GST Catalyse D2C Adoption?

Once the dust settles, the consensus is that GST reforms will act as a tailwind for D2C consumption. The magnitude of the uplift will vary by category, but the direction is clear: lower prices expand access, and access drives trials. 

Some of this has to be taken with a pinch of salt too, as there are other geopolitical clouds hovering over the economy. Tariffs have dampened the global ambitions to some extent, and domestic consumption push is most needed in the segments of the demography that are not typically the core target audience of D2C brands.

Amit Sah, founder of Ozi, a baby care quick commerce platform, expects D2C businesses to grow as the GST cut will result in higher disposable income. “GST cuts are a big win for parents, essentials like baby food and diapers are now just 0-5%, and toys have dropped to 5% (from 12%). These items will help us get more customers as we try to strike a balance with clothes and accessories for babies that is in higher tax brackets,” he said. 

A financial advisor to multiple startups, speaking on the condition of anonymity, outlined three structural shifts. 

First, the reforms will pull in first-time users who had previously stayed away from D2C products due to their premium pricing. Second, they will accelerate migration from the unorganised to the organised sector. Third, consumers are more likely to upgrade to products they earlier considered premium, thereby expanding the total addressable market for digital-first brands.

“The price drop will give D2C brands more visibility, which will gradually translate into higher market share,” the expert noted, warning that consumption gains typically need to be monitored over a long period of time, and pinning down a timeline is difficult. 

Yet the road ahead for D2C brands will continue to have challenges. Despite the price advantage, FMCG incumbents will continue to dominate owing to higher brand recall, shelf presence, and finely tuned distribution networks. D2C players will be forced to deeper discounting in the near term to remain competitive, which would strain their margins.

One D2C founder of a Mumbai-based packaged food startup acknowledged this reality but said, “As D2C consumption grows gradually, in three to four years, we should expect price rationalisation. Volumes will improve, and with scale, the ecosystem will reach more sustainable unit economics.”

Differences in categories will, however, determine winners and laggards. In apparel, consumers who once opted for Westside or Pantaloons may now be willing to experiment with brands such as Snitch or Rare Rabbit, thanks to a narrower price gap. 

In other sectors, where there is less elasticity and aspirational quotient — packaged foods or personal care — D2C brands may yet face an uphill battle against FMCG giants with entrenched loyalty and nationwide reach.

Edited By Nikhil Subramaniam