Khushroo B. Panthaky is a Chartered Accountant and Senior Partner, commanding over 41 years of professional experience in an Accounting and Audit firm.

 

Recently, India implemented a sweeping revision of the GST regime ‘GST 2.0’ or ‘Next-Gen GST’, following the decisions of the 56th GST Council meeting. This represents one of the most significant overhauls of India’s indirect tax regime in years. For the consumer, the promise is real: lower rates for select essentials, more clarity and simplification, and a tangible boost in purchasing power if implemented well.

The GST slab architecture has been rationalized as the previous multiple slabs of 5%, 12%, 18%, 28%, are replaced by two main slabs rate of 5% for essential consumer goods and standard rate of 18%. Certain items earlier taxed at 12% or 18% have been reclassified either downwards to 5% or upwards to 18%, depending on the nature of goods and services.

The aim of this legislation is to make the GST simpler, more transparent, reduce distortions, and deliver more direct relief to consumers, particularly for everyday goods while retaining a mechanism to tax luxury/sin goods more heavily @ 40%.

What Does It Mean for the Common Consumer / Household?
From the perspective of a regular consumer, the reforms are intended to deliver more affordable consumption, more clarity, and greater fairness in tax incidence. However, the benefits and challenges need to be carefully examined.

Examples of expected gains for consumers:
Household groceries: Suppose a product that was taxed at 18% moves to 5%. The pre-tax portion remains, but the tax component shrinks. For a ₹100 product, an 18% GST adds ₹18; under 5%, it adds ₹5, so consumer saves ₹13.
Insurance: If a life or health insurance premium was earlier attracting 18% GST and is now exempt, a ₹10,000 premium saves ₹1,800 in tax. However, since input tax credit is not available for set off to the insurer, the probability of an increase in the amount of premium cannot be precluded.
Actual consumer savings will vary based on base price, margin structure, and how much of tax cut is passed through.

Gains for consumer: As the range of goods and services impacted is wide, it would be relevant to understand pros and cons impacting such announcements…
Consumer Goods At Cost Effective Price: As certain items formerly taxed at higher rate have been moved to lower rate bracket, consumers are expected to see lower effective prices on many staples. For eg., some food preparations, packaged snacks, baby products, educational items are targeted for lower rates.
Cheaper Consumer Durables, Appliances, Automobiles: Several electronic items, white goods and automobiles, especially small cars and light vehicles, have seen a reduction in GST rates from 28% or a higher rate to 18%. This reduction is expected to lower the tax burden and potentially pass on the savings to consumers. Auto manufacturers have already announced price reductions for identified models, and there have reported increase in bookings as the demand has surged in the automobile sector.
Clearer Rates And Less Confusion: The simplification of GST slabs reduces classification issues, disputes over applicable rates, and tax arbitrage opportunities. This clarity helps consumers to circumvent unexpected charges on bills and makes budgeting easier.
Potential Increase In Consumption: The lower tax burden is expected to boost disposable income and increase in demand for goods and services that were previously deferred. The Reserve Bank of India (RBI) has noted that the policy is likely to ease retail prices and stimulate consumption.
Benefits To Insurance, Health, Education Sectors: Certain services, such as life and health insurance premiums, are now exempt from GST, which has enabled reduction in costs for households. Educational goods and learning materials have received favourable treatment, and fitness/gym services have seen a rate reduction to 5%.
Transparency In Passing On Benefits: The government aims to ensure that tax savings are passed on to consumers, which prevents profiteering. The simpler GST structure helps regulators and consumers to spot discrepancies more easily.

Challenges From The Consumer Lens:
In practice, businesses or brands may not ‘fully’ pass on the GST savings to consumers for several reasons and may retain margins or incrementally adjust pricing. Moreover, in some categories where demand is inelastic or supply constrained, sellers might delay discounts or limit them to select Stock Keeping Units. Transition to new rate requires massive updating of billing systems, tax masters, inventory classification, and careful handling of invoices straddling the transition date. Mistakes, misclassification, or delays in corrections/credit notes may lead to temporary overcharges for the consumers.

The reforms do not only bring positive impact on the covered items, but few goods do get costlier. Luxury goods, sin goods or goods crossing predefined thresholds may now attract higher taxation, for example, garments above ₹2,500 are moving from lower slab rate of 12% to higher rate of 18%. Vehicles above certain engine capacities or premium vehicles may see composite effect of reduced GST rate, but introduction of higher slab or re-classification can change dynamics of net price. New 40% slab introduced for certain sin / luxury goods, may mean certain items becoming more expensive than earlier GST regime.

The revenue sacrifice from rate cuts has a potential to be made up somehow – future compensatory measures, cuts in public spending, or reintroduction of new cesses may affect sectors or indirectly affect consumers via inflation and cuts in subsidies. Also, States or the Centre might seek alternative indirect taxation or regulatory levies to make up the shortfalls, eventually affecting consumer costs. Even if the cost basis falls, competition, brand positioning, logistical costs, or contractual price agreements may delay downward movement of consumer prices. Further, post implementation, demand may surge causing stock shortages and time lags in delivery.

Advice for the Consumer
The GST reforms 2.0 represent one of the most significant overhauls of India’s indirect tax regime with promising announcements, however, the key translating promise into reality lies in effective pass-through, vigilant enforcement and public awareness. The consumers should:
• Be alert to invoice line items and check whether the correct / lower GST rate is applied.
• Compare pre-and-post reform prices for goods intended to be purchased.
• Raise queries/complaints if discounts are not passed on.
• Share feedback via consumer forums or digital grievance portals.