GST 2.0 kicks off: Now over to consumers to spend

The rate cuts under the goods and services tax (GST) come into effect from today and most companies have already announced reductions in prices of products, ranging not just from cars and electronics but also in daily use items such as milk, biscuits and shampoos. More companies are expected to announce price cuts going forward. It’s now up to consumers to take advantage of the price cuts and splurge, at least in the festive season.

Prime Minister Narendra Modi in his address to the nation on September 21 had called this the GST Bachat Utsav and had said that the exemption in income tax and exemption in GST together will save more than Rs 2.5 lakh crore for the people. 

The GST Council, in its 56th meeting, had cut rates on 453 goods with nearly 295 moving to the 5% or 0% rates from the earlier 12% slab. Similarly, several goods are now taxed at 18% instead of the earlier rate of 28%.

Car dealers and consumer durable companies have already seen higher enquiries and expect to see greater bookings and purchases during Navratri and then in weeks leading up to Diwali, which is typically the time for big-ticket purchases.

Apart from these one-off purchases, it is expected that households will spend less on essentials due to the tax cuts, which could give them space to either spend a little bit more on discretionary items or improve their savings. Several services, including spas, salons, gyms and yoga centres as well as insurance premia will also become significantly cheaper due to the GST rate cut and exemption.

A recent report by Crisil Ratings noted that the new GST rates will benefit 11 of the top 30 consumption items and a third of an average consumer’s monthly expenditure. These 11 items include essentials such as milk products, discretionary products like automobiles and beauty services, and goods like processed food that have seen a surge in demand over the past few years, the report noted. “These items account for 28% of rural MPCE and 26% of urban MPCE,” it further said.

Saurabh Agarwal, Tax Partner, EY India, said the rate rationalisation is a direct and meaningful boost for every Indian family. Take, for example, a person earning Rs 50,000 a month, who spends about Rs 25,000 on daily essentials from food to personal care to medical bills. Of this, GST rate cuts could impact about Rs 15,000, helping save about Rs 1,275 per month. “This effectively represents an approximately 2.55% increase in their monthly disposable income. That's significant extra cash put directly into the hands of the common man,” he points out.

To ensure that companies pass on the benefit of the rate cuts to consumers, the department of consumer affairs has also enabled GST grievance redressal on the National Consumer Helpline while the Central Board of Indirect Taxes and Customs is monitoring prices of 54 goods over the course of the next six months.