Grant Thornton seeks GST rethink on affordable smartphones as 35 crore Indians remain on feature phones

Grant Thornton Bharat and the Policy Watch India Foundation (PWIF) have called for a review of the Goods and Services Tax (GST) structure for affordable smartphones, recommending that the tax rate be reduced to 5% for devices priced below ₹25,000 while retaining the existing 18% GST on premium smartphones.

In a joint whitepaper released on Tuesday, the organisations argued that the current uniform GST regime no longer reflects the role smartphones play in India's digital economy and that affordable handsets should now be treated as "first-access digital infrastructure" rather than discretionary consumer products.

Calls for differentiated GST structure

The report said the increase in GST on mobile phones from 12% to 18% in April 2020 was aimed at correcting the inverted duty structure in mobile phone manufacturing. However, it argued that the policy environment has changed substantially over the past six years as smartphones have become the primary gateway to Digital Public Infrastructure (DPI).

"The core policy question is whether smartphones, now functioning as essential digital infrastructure, should continue to be taxed at a uniform 18% GST, or whether the tax structure should be recalibrated to reflect their foundational role," the whitepaper said.

The report proposed a differentiated tax structure with 5% GST on smartphones priced below ₹25,000 while maintaining the existing 18% rate for higher-priced devices.

According to the study, the sub-₹25,000 segment accounts for nearly two-thirds of India's smartphone shipments and primarily caters to first-time buyers, rural households, women, students and lower-income consumers. It estimated that nearly 35 crore Indians still use feature phones, suggesting affordability continues to be a key barrier to wider digital participation.

'Lower GST can strengthen long-term revenues'

The whitepaper argued that reducing GST on affordable smartphones should not be viewed as a revenue concession but as a long-term fiscal intervention.

"While the proposed tax reduction may appear fiscally contractionary in the short term, it is likely to become revenue-accretive over the medium to long term through device-led tax buoyancy," it said. The report added that improved affordability could boost smartphone adoption, deepen digital payments, increase telecom usage and expand participation in e-commerce, ultimately generating higher tax revenues across multiple sectors.

The study also linked handset affordability with India's electronics manufacturing ambitions under the production-linked incentive (PLI) scheme, saying stronger domestic demand would support localisation and value addition even as India has emerged as the world's second-largest smartphone manufacturer.

Drawing comparisons with other manufacturing hubs, the report noted that India levies one of the highest indirect tax rates on smartphones among comparable developing economies, while countries such as Vietnam, Thailand, Indonesia and Malaysia have adopted relatively lower tax structures to support wider smartphone adoption. It concluded that rationalising GST on affordable smartphones would advance the government's Digital India, financial inclusion and Make in India objectives while making digital access more affordable for millions of consumers.