The government’s decision to slash GST rates on key dairy products has been hailed as a landmark reform that promises benefits across the value chain. Effective September 22, 2025, the tax cut lowers consumer prices on essentials like butter, ghee, paneer, and cheese, while boosting farmer earnings and strengthening the organised sector. Announced ahead of the festive season, the move is being celebrated as both a timely “Diwali gift” for households and a long-term catalyst for India’s dairy industry.
The government’s significant cut in GST rates on dairy products, announced on September 3, 2025, has been welcomed across the board by the dairy industry. Stakeholders say the move will create a ripple effect of benefits, reaching farmers, consumers, and the organised sector alike.
Effective September 22, 2025, specific items such as condensed milk, butter, ghee, other fats, and cheese will now attract a 5% GST, down from the earlier 12%. In addition, GST on paneer and select types of milk will be reduced from 5% to zero. The announcement comes just ahead of the festive season, making it not only a structural reform but also a symbolic “Diwali gift” for households across India.
The reform is being positioned as a long-term win by the government and industry observers. By lowering the tax burden on everyday dairy essentials, the policy is expected to boost consumer demand, improve farmer margins, reduce adulteration, and enhance revenue collection by strengthening the organized sector.
For consumers, the immediate effect will be felt in lower retail prices for key dairy items, easing household budgets at a time of rising food costs. Dairy farmers, on the other hand, are expected to benefit indirectly. Lower taxes allow processors to channel a greater share of the consumer’s rupee back to producers, ensuring better remuneration for milk and encouraging higher productivity.
As Mr. Rahul Kumar Srivastava, COO, Parag Milk Foods Ltd, noted:
“The government’s decision to reduce GST rates on dairy products is a bold and transformative step. It will bring direct relief to consumers through lower prices, while also ensuring that dairy farmers receive better remuneration for their milk. With reduced taxes, the benefits flow across the value chain—strengthening farmers, boosting processors, and enhancing the quality available to consumers. Importantly, this move will stimulate demand for milk, which is vital for nutrition in India, and curb adulteration by making genuine products more competitive. Overall, it is a win-win for farmers, processors, and consumers alike.”
This alignment of consumer welfare with farmer empowerment represents one of the rare moments in policy where the interests of both sides of the value chain converge.
One of the less-discussed but crucial aspects of the reform is its potential to curb adulteration in the dairy market. In the past, higher GST rates pushed many consumers toward the unorganised market, where products were often cheaper but lacked quality assurance and traceability.
By reducing the tax burden, the government is narrowing the price gap between organised and unorganised players. This will make authentic, branded dairy products more affordable and competitive, reducing incentives for adulteration and ultimately improving food safety standards.
India is the world’s largest producer and consumer of milk, with the dairy industry contributing significantly to the agricultural GDP. Analysts believe that lowering GST will stimulate rural demand by making dairy products more accessible in smaller markets and villages. Rising demand is likely to encourage farmers to increase production, while processors benefit from higher sales volumes.
This cycle of higher demand, better prices for farmers, and expanded production has the potential to lift the sector’s overall contribution to the country’s GDP. More importantly, it aligns with the government’s larger objective of inclusive rural development.
The organised dairy sector, which has steadily expanded its footprint over the last decade, is also expected to benefit from this reset. With lower taxes encouraging consumers to shift from unbranded to branded products, companies will have greater incentives to invest in infrastructure, technology, and innovation.
Experts predict this could lead to fresh investments in feed, animal healthcare, mechanisation, and cold chain infrastructure—elements crucial for long-term growth. Strengthening linkages between dairy, livestock, and allied industries will create a more resilient ecosystem that supports both farmer livelihoods and industrial efficiency.
Beyond economics, the GST cut is also being seen as a measure to improve nutrition. Milk and dairy products are a key source of protein and micronutrients for millions of Indians. By making these products more affordable, the government is directly addressing nutritional gaps, particularly among lower-income households.
In the long run, the measure could contribute to better health outcomes, especially for children, women, and vulnerable populations who rely heavily on milk for daily nutrition.
The GST reduction on dairy products is more than just a tax reform—it is a holistic intervention that balances the interests of consumers, farmers, and industry. By addressing affordability, farmer remuneration, quality assurance, and demand generation, it positions the dairy sector as a cornerstone of India’s agricultural and rural growth story.
As industry leaders and experts underline, this move has the potential to set the stage for a stronger, more formalized, and consumer-friendly dairy market. And with its timing just before the festive season, it is not just sound economics but also a strategic political gesture that will resonate with millions of households across India.
What is the new GST rate on dairy products like butter, paneer, and UHT milk?Effective September 22, 2025, GST on butter, ghee, cheese, condensed milk, and other dairy spreads is reduced to 5% (from 12%). UHT milk, pre-packaged paneer, and similar dairy items are now GST-exempt (0%).
How will the GST cut benefit dairy farmers and cooperatives?The reduction is expected to benefit over 100 million dairy farmers, improving margins for producers and strengthening the cooperative sector, as noted by the Ministry of Cooperation.
How much can consumers save due to the GST cut on dairy items?Consumers may save around ₹42 per kg on ghee, approximately ₹3–₹4 on UHT milk or paneer, and ₹8.40 on 200g of cheese, assuming full pass-through of the tax reduction.
Will the GST reduction affect the pricing of other food items?Yes. Many essential food items are moving to the 5% slab, while some dairy staples like UHT milk and paneer have been moved to the zero-tax category. This is part of the broader “GST 2.0” reform aimed at easing household budgets ahead of Diwali.
What impact is the GST cut expected to have on the dairy industry overall?The reform is projected to bring gains of around ₹11,400 crore to the industry by lowering input costs, boosting demand, and elevating the competitiveness of organized dairies and branded products.
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