On September 4, 2025, shares of ITC Ltd surged over 3 percent intraday, closing at ₹418.05, following a key announcement from the 56th GST Council meeting. While the Council approved a sweeping overhaul of India’s indirect tax structure—simplifying the four-slab system into two rates of 5 percent and 18 percent—tobacco products, including cigarettes, were notably excluded from the rate cuts. This decision was interpreted by investors as a short-term positive for ITC, which derives a significant portion of its operating profit from cigarette sales.
GST Council’s Decision: What Changed and What Didn’t
The GST Council’s latest reforms aim to streamline India’s tax system by collapsing multiple slabs into a dual-rate structure. Consumer durables such as air conditioners, large televisions, and dishwashers saw tax reductions, boosting sentiment in those sectors. However, tobacco products—including cigarettes, gutkha, and pan masala—will continue to attract the existing 28 percent GST plus compensation cess.
This status quo will remain until the central government repays borrowings taken to compensate states for revenue losses under the GST regime. Once those obligations are cleared, the Council plans to transition tobacco taxation to a 40 percent slab based on retail selling price (RSP), replacing the current transaction-value model.
Why ITC Shares Reacted Positively
The market had anticipated a possible increase in tax burden on tobacco products under the new GST framework. However, the decision to retain the current structure provided short-term relief to ITC and other tobacco companies. Analysts at Jefferies noted that the shift to an RSP-based model, once implemented, could actually reduce the overall tax incidence by nearly 5 percentage points, depending on how the compensation cess is restructured.
Moreover, the absence of immediate tax hikes removed a key overhang on ITC’s valuation. The stock touched a high of ₹427.00 during early trading hours, with over 146 lakh shares traded by mid-morning. Deliverable volumes accounted for more than 66 percent of the total, indicating strong investor conviction.
Long-Term Implications for ITC
While the short-term outlook remains stable, the long-term transition to an RSP-based taxation model could reshape ITC’s pricing strategy and margins. The new framework is designed to plug valuation leakages and curb tax evasion, which may benefit organized players like ITC. However, the company will need to navigate potential margin pressures if the cess component increases or if price-sensitive consumers shift to lower-tier products.
ITC’s diversified portfolio—including FMCG, hotels, and paperboards—offers some cushion against regulatory shocks in its tobacco business. Still, cigarettes remain its most profitable segment, contributing over 70 percent of operating profit. Any structural change in taxation will require strategic recalibration.
Sectoral Impact and Peer Movement
Other tobacco stocks such as Godfrey Phillips India and VST Industries also saw modest gains, buoyed by the clarity on tax treatment. Analysts expect these companies to benefit from reduced regulatory uncertainty and potential market share gains if illicit trade is curbed under the new tax model.
The broader FMCG sector responded positively to the GST overhaul, with consumer durable makers anticipating a demand boost ahead of the festive season. However, tobacco remains a unique category, often subject to sin taxes and public health scrutiny.
Strategic Insights from Eqwires Research Analyst
In a regulatory environment marked by sudden shifts and policy recalibrations, investors need more than just headline news—they need strategic interpretation and disciplined execution. Eqwires Research Analyst, a SEBI-registered advisory firm, offers precisely that.
Eqwires specializes in:
- Real-time trade setups aligned with policy announcements
- Sectoral impact analysis across FMCG, tobacco, and consumer discretionary
- Earnings forecast modeling based on tax and regulatory changes
- Portfolio strategies that hedge against policy risk and volatility
For investors tracking ITC or exploring opportunities in regulated sectors, Eqwires provides clarity and actionable intelligence. Whether assessing the implications of GST reforms or evaluating long-term margin trajectories, Eqwires equips stakeholders with the tools to make informed decisions.
Conclusion
ITC’s stock rally following the GST Council’s announcement underscores the importance of regulatory clarity in shaping investor sentiment. While the long-term shift to an RSP-based tax model may introduce new variables, the immediate decision to retain the current structure has provided a window of stability. As India’s tax landscape evolves, strategic guidance from firms like Eqwires Research Analyst will be essential for navigating complexity and capturing upside in high-stakes sectors.
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