Here’s how cuts will reach consumers by September 22

NEW DELHI: With the govt announcing sweeping GST rate reductions on nearly 400 goods and services, companies across sectors are working to adjust prices and pass on the benefits to consumers by the Sept 22 implementation date.

TOI spoke to companies and industry experts to understand how different sectors plan to pass on the GST cuts.

Under the GST framework, tax is applied at multiple stages of production and distribution. Companies claim input tax credit (ITC) on GST paid for inputs. However, once goods are manufactured and invoiced, the applicable GST is locked in - based on the rate at the time of sale.


This means goods already dispatched to dealers before Sept 22 carry price tags that reflect the old tax rate. Adjusting those prices midstream requires coordination across manufacturers, distributors, and retailers.

"Trade promotions and schemes may need recalibration. Distributors might seek credit adjustments for inventory purchased at higher GST rates. Companies also need to update ERP systems, billing software, and point-of-sale terminals," said Naveen Malpani, partner and consumer industry leader at Grant Thornton Bharat. While large retail chains can adapt quickly thanks to integrated technology platforms, smaller stores and traditional kirana retailers may face difficulties updating systems in time, he added.

The govt has made it clear the objective is to benefit the end consumer. "This reform has been implemented with a consumer-centric lens. GST, being embedded in the price paid by the consumer, is being recalibrated to deliver that benefit directly," said MS Mani, partner at Deloitte India.

Here's a sector-by-sector snapshot:

Consumer Goods (FMCG)

In the fast-moving consumer goods segment, strategy depends on product pricing. For fixed-price packs (for example, Rs 5 or Rs 10 namkeens and biscuits), companies are expected to increase grammage rather than cut prices, to retain the psychological price point.

For other items such as shampoos, soaps, and toothpaste, revised stickers will be placed once the new rates come into force. Pricing differences on old inventory will be adjusted through the credit note system between manufacturers, distributors, and retailers - ensuring that frontline sellers aren't burdened.

Consumer Durables

White goods companies - selling TVs, ACs, refrigerators, and washing machines - are optimistic about the changes. The GST on these items drops from 28% to 18%, and firms are expecting a demand boost ahead of the festival season.

Many companies had proactively assured dealers they would bear the losses on unsold inventory billed under old rates. For example, an air conditioner billed at Rs 20,000 earlier attracted Rs 5,600 GST (28%). Under the revised rate, the tax drops to Rs 3,600. To avoid a Rs 2,000 hit per unit post-Sept 22, some manufacturers are willing to compensate.

Hotels and Air Travel

Hotel room rates belowRs 7,500 a night will attract 5% GST, down from 12%. However, only customers opting to pay at check-in will benefit. If the room was paid for in advance, the service is treated as already rendered under earlier rates - even if the stay is after Sept 22.

Similarly, GST on premium economy, business and first class air tickets is being increased from 12% to 18%. Tickets paid for before Sept 22 will continue under old rates.

Insurance

Health and life insurance policies purchased by individuals will now be fully exempt from GST. This translates into an 18% notional savings for consumers. However, insurers have raised concerns. As input tax credit on goods and services used by them - such as printing, IT, transport - has been withdrawn, they may no longer be able to offset those costs.

Some insurers are considering value-adds (for instance, enhanced room eligibility or personal accident cover) when an existing policy is renewed, instead of cutting premiums. Govt officials are nudging industry to ensure benefits by way of lower premiums reaching policyholders. While many insurers may initially pass on benefits, they are also evaluating adjustments in future pricing.

Car Dealers

This segment is an outlier - facing significant temporary distress because of anticipated GST cuts. Several car dealers have flagged losses due to high inventory levels built up after PM Narendra Modi's Aug 15 announcement that rate cuts were being considered.

Now, with cess structures revised, dealers fear steep losses on unsold vehicles. For instance, a car previously taxed at 50% (28% GST + 22% cess) will now attract 40% tax - but with dealers already paying the cess on old stock, they can't claim refunds. They will also have to pay 12% additional GST on some models, leaving them staring at a hit.

Manufacturers in the auto sector have not universally committed to protecting dealers. Some have offered partial support, but many dealers feel exposed. Industry bodies are in discussions with the govt seeking relief.

What Happens Next

From updating billing software and reprinting stickers to issuing credit notes and managing dealer expectations, businesses are navigating complex operational challenges. Govt, meanwhile, will monitor compliance to ensure that the benefits of tax cuts are passed on.