Govt Working to Ensure Benefits of GST Rate Cuts Passed on to Consumers

Introduction

The Indian government is rolling out significant reforms to the Goods and Services Tax (GST) system, aiming to reduce tax burdens and boost consumption ahead of the festive season. Announced as a "Diwali gift" by Prime Minister Narendra Modi, these reforms include slashing tax rates and simplifying tax slabs. However, to ensure these changes translate into lower prices for consumers, the government is taking proactive steps to prevent businesses from profiteering. This blog explores the proposed GST reforms, the measures to enforce price reductions, and their potential impact on consumers and the economy.

The GST Reforms: A Consumer-Centric Overhaul

On August 15, 2025, Prime Minister Modi announced the "next generation" of GST reforms, signaling a major restructuring of the tax system introduced in 2017. The proposed changes include:

• Simplified Tax Slabs: The current four-tier GST structure (5%, 12%, 18%, and 28%) will be streamlined into a two-tier system of 5% and 18%, with a special 40% rate for luxury and sin goods like tobacco. Approximately 99% of items in the 12% slab will move to 5%, and 90% of items in the 28% slab will shift to 18%.
• Rate Reductions: Essential and daily-use items such as toothpaste, soap, small cars, bicycles, and white goods like air conditioners and washing machines will see reduced tax rates, making them more affordable. For example, small petrol and diesel cars (engine <1200cc for petrol, <1500cc for diesel, length <4m) are expected to move from 28% to 18%.
• Elimination of Compensation Cess: The compensation cess, applied to luxury and demerit goods, will end by March 31, 2026, creating fiscal space for sustainable rate rationalization.

These reforms aim to enhance affordability, boost consumption, and simplify compliance for businesses, particularly MSMEs, while addressing issues like inverted duty structures that lock up working capital.

Ensuring Benefits Reach Consumers

To ensure that the GST rate cuts translate into lower prices for consumers, the government is implementing stringent measures to prevent profiteering by businesses:

• Anti-Profiteering Framework: Section 171 of the CGST Act, 2017, mandates that any reduction in tax rates or input tax credit benefits must be passed on to consumers through price reductions. The government is leveraging this legal framework to enforce compliance without necessarily waiting for the reconstitution of the National Anti-Profiteering Authority (NAA), which was phased out in 2022.
• Monitoring and Enforcement: The GST Council, chaired by Finance Minister Nirmala Sitharaman, is working with state governments to monitor businesses, particularly in sectors like FMCG, automobiles, and consumer durables. Some states have proposed involving the consumer affairs ministry, establishing grievance redressal platforms, and reintroducing an anti-profiteering law for a limited period with hefty penalties for violations.
• Audits and Oversight: Tax authorities are conducting audits to verify whether businesses, including e-commerce giants like Amazon and Myntra, are passing on tax benefits. Past instances, such as the 2018 audits of companies like Nestle and Hindustan Unilever, show the government’s commitment to enforcing compliance.
• Consumer Awareness: The government is encouraging consumers to report instances of profiteering, ensuring businesses are held accountable. Historical campaigns, such as those in 2017, educated consumers about their rights to benefit from tax cuts.

These measures aim to ensure that businesses do not absorb the tax savings as additional profits, which could undermine the goal of making goods more affordable for the common man.

Potential Impact on Consumers and the Economy

The GST rate cuts and anti-profiteering measures are expected to have far-reaching effects:

• Increased Affordability: Lower taxes on essentials like food items, medicines, and daily-use products will increase purchasing power, particularly for low- and middle-income households. For instance, items like butter, fruit juices, and small sachets of FMCG products may move to the 5% slab, reducing costs.
• Boost in Festive Demand: With the reforms timed for rollout by mid-September or October 2025, ahead of Navratri and Diwali, consumers are likely to spend more, benefiting sectors like FMCG, automobiles, and white goods. This aligns with the government’s goal of stimulating demand amid global trade uncertainties.
• Economic Growth: Analysts suggest that increased consumption due to lower prices could offset potential revenue losses, estimated at Rs 60,000–85,000 crore annually, by widening the tax net and improving compliance. The Reserve Bank of India previously calculated the average GST rate at 11.6%, which is expected to decrease significantly, further encouraging spending.
• Challenges for Businesses: While businesses benefit from simpler tax structures, they face challenges in adjusting prices, especially for products with fixed maximum retail prices (MRP) under the Legal Metrology Act, 2009. The government is addressing these concerns by ensuring a balanced approach that avoids excessive litigation.

Historical Context

This is not the first time the government has prioritized passing on GST rate cut benefits. In 2017, after the GST rollout, the NAA was established to monitor compliance, and companies like McDonald’s and Starbucks faced scrutiny for not reducing prices. In 2021, the NAA directed suppliers of COVID-related medical devices to lower prices after tax cuts. These efforts demonstrate a consistent focus on consumer welfare.

What Consumers Can Do

Consumers can play an active role in ensuring they benefit from the GST reforms:

• Stay Informed: Monitor announcements from the GST Council and CBIC for updates on rate changes and implementation dates, expected around September 3–4, 2025.
• Check Prices: Compare prices before and after the rate cuts to ensure businesses are passing on savings. Report discrepancies to tax authorities or consumer grievance platforms.
• Support Compliance: Choose businesses that transparently reduce prices, encouraging fair practices in the market.

Conclusion

The government’s push to ensure GST rate cut benefits reach consumers reflects a commitment to affordability and economic growth. By simplifying tax slabs, reducing rates on essential and aspirational goods, and enforcing anti-profiteering measures, the reforms aim to make Diwali 2025 truly festive for Indian consumers. While challenges like revenue losses and business compliance remain, the focus on transparency and consumer welfare sets a positive tone for the economy. Stay vigilant, stay informed, and enjoy the benefits of a more affordable festive season!

For more details, visit the GST Council website (www.gstcouncil.gov.in) or check updates from the Finance Ministry.