GST cut puts consumer durables in transition mode

Consumer durables makers and retailers are preparing for a transition as the new Goods and Services Tax (GST) slabs come into effect on September 22. The GST Council, in its September 3 meeting, collapsed the earlier 12% and 28% rates into a simpler two-slab structure of 5% and 18%. For durables, this means air-conditioners, large-screen televisions, and dishwashers will see their tax rates fall from 28% to 18%—a move expected to improve affordability and demand, but one that could also create immediate inventory and pricing challenges.

Kamal Nandi, business head & EVP at the Appliances Business of Godrej Enterprises Group, says the company has been careful in planning ahead. “We have been careful about not overstocking ACs and only replenishing based on consumer offtake, so we don't expect high levels of old inventory. As far as pricing is concerned, we aim to pass on the price reduction due to GST rationalisation to consumers,” he said, adding that air conditioners, with only around 10% penetration in India, could benefit meaningfully from the shift.

Analysts expect the impact to be visible quickly. JM Financial noted that a 7–8% reduction in effective prices could translate into 9–10% additional volume growth for air-conditioners, assuming brands pass on the benefit to customers. “Brands are highly likely to pass on the benefit, given fierce competition within the space, and also the government’s stance on the same,” the brokerage said. "If this plays out, our calculations suggest an upward revision of 2-5% in FY27/28E EPS estimates for AC brands. The one risk that we see here is these price cuts replacing festive discounts, and restricting the benefit to end-customers," it added. 

Industry channels are sitting on around 4 million AC units after a muted summer and purchase deferments in anticipation of the tax cut. August sales were below normal, and September is likely to remain sluggish until the new rates kick in. Inventory is expected to normalise by October, aided by festive sales, pent-up demand, and price elasticity.

Dealers echo the sentiment. “On the reduction of the GST, it’s great news for the industry. After a dull start to the financial year, it will definitely provide momentum to the sales. As for the stocks purchased at the higher GST rates, the dealers will receive the input for the same and only have to collect the revised GST from the consumers. So, it won’t make a difference to them," explains Sorabh Nahata, partner at Canara Electric & Refrigeration Co. "An important fact to notice however is that this reduction in GST has to be passed on by the companies to the consumers by maintaining the same base prices and reduction in the MRPs,” he adds. 

Manjeet Jain, GM of Girias Investment Pvt Ltd, pointed out that the earlier 28% tax structure “was an atom bomb on the profits of any business in this competition market.” The cut to 18% not only lowers consumer prices but also eases working capital pressures on traders. Moreover, he says that unsold inventory is not at all a problem as the excess tax will be set off against any payable GST in future as basic price of the goods will remain unchanged. "The overall prices of goods will come down which will enable to drive more sales and also it will add to some savings for the common people," he adds. 

Since GST paid on older stock can be claimed back as input tax credit, the bigger task is re-pricing products and updating billing systems. As one south India-based retailer pointed out, the critical factor is ensuring that companies don’t absorb the gains but reduce MRPs in line with the new tax rate. That could decide whether the GST cut translates into higher volumes or just substitutes for festive discounts. Moreover, the timing of the implementation could prove to be tricky. Jawhar Banday, managing director at Oriental Stores, said that a mid-month switch creates unnecessary compliance headaches. “I don’t understand why the government did it neither on the 1st of September or on the 1st of October, because in the middle of the month it will be a little challenge for GST-registered parties to give clarity on the sales done before 22nd and after 22nd, since you need to differentiate the same HSN (Harmonised System of Nomenclature) with different tax rates,” he said though in the long run, he adds, the move will be beneficial for the trade as well as for the customer. 

Consultants warn that backend work will be significant. Partner and national leader for tax – consumer products and retail sector, EY India, Paresh Parekh opines that companies will need to update IT systems, renegotiate with distributors, and reconfigure invoicing to reflect new slabs. Short-term incentives may also be needed to help distributors clear high-tax inventory. "Planning for transition is primary in the mind of companies. Companies may take a position to clear the inventory by selling at a discount. They may have to pass on additional incentives to their distributors/wholesalers for stocks lying with them with higher GST as on 22nd September, if there is an accumulation of ITC (Input Tax Credit) at their end," Parekh explains. 

Harpreet Singh, partner, Indirect Tax at Deloitte India, says many companies began preparing for the shift right after the Prime Minister’s Independence Day address. “Key action steps would involve assessing fiscal impact on account of change in state and central incentives, updating MRPs across the supply chain, re-negotiating terms with stockists and vendors, and making changes in ERP systems. Another key area of focus will be calculating the benefit of rate reduction to be passed on to consumers,” he said.

What's in it for consumers

From a demand perspective, affordability will be a game-changer. Anurag Sharma, managing director and CEO of AKAI India, estimates that households could save ₹3,000–5,000 on big-ticket appliances, making products more accessible in Tier-II and Tier-III cities where affordability is most sensitive. "The new GST rate cuts will also empower the entire electronics industry and fuel its momentum. Additionally, the industry will be able to enjoy faster transit times across state borders, enhanced overall operational efficiency, and reduced logistics costs,” he adds. 

Saif Khan, MD and CEO at BSH Home Appliances, said the move is timely. "With the festive season around the corner, this move is poised to provide a much-needed boost to the industry, as more consumers seek to upgrade their homes with products that offer convenience, superior hygiene, and sustainability.” He expects the dishwasher segment to grow at 30–35% annually over the next two years.

Credit rating agency ICRA sees the reform as a strategic push to revive discretionary spending, especially in electronics and home appliances. Retailers and e-commerce players are expected to seize the moment with promotions, further amplifying demand. "While the industry will need to manage supply chain dynamics as import dependence for certain bill-of-material parts remains high, the GST rate cut improves affordability and will revive consumption demand that has been subdued lately,” says Jitin Makkar, senior vice president and group head, Corporate Sector Ratings, ICRA Limited.

On the ground, traders say the mid-month implementation date creates some accounting headaches. Inventories have to be split between sales before and after September 22 under different tax rates, which adds to compliance work. But most agree that the benefits outweigh the inconvenience.

"While companies face the dual challenge of clearing older inventory and recalibrating pricing strategies, India Inc. is likely to witness a surge in demand both before and after the revised rates come into force.” said Deloitte's Singh.