GST relief may cool AC prices by up to ₹2,500; brands expect brief drop in sales ahead of rate cut

Prices of air-conditioners may come down by up to ₹2,500 if the government’s proposal to slash Goods and Services Tax (GST) on the cooling appliances from the present 28% to 18% is approved, even as appliance makers expect a temporary lull in sales ahead of the festive season as consumers wait for the rate cut to take effect.

Prime Minister Narendra Modi on Friday announced plans for a major reform in the GST regime by Diwali to make essential items more affordable and simplify the eight-year-old indirect tax system, which has been grappling with compliance issues, evasions and litigation.

The proposal, which includes doing away with the 12% and 28% slabs, will be taken up by the Group of Ministers (GoM) on GST rate rationalisation on August 21, before being considered by the GST Council next month.

The Centre has suggested a simplified structure with two slabs – 5 and 18% – and a higher 40% rate for select goods.

One of the biggest relief could come in the form of lower GST on air-conditioners and larger television screens. The cut in tax rates is expected to reduce AC prices by 6-10%, translating into a benefit of ₹1,500-2,500 depending on models.

Blue Star Managing Director B Thiagarajan termed the move “great” but cautioned that the announcement could lead to a pause in purchases till the new rates kick in.

“Nobody will buy RACs (room air-conditioners) now in August, they will wait till September or October. So, dealers will not buy and customers will not buy in between,” PTI quoted Thiagarajan as saying.

Panasonic Life Solutions India Chairman Manish Sharma said the industry was expecting around 12% GST on energy-efficient products and the rest in the 18% bracket.

However, "in a situation where GST on ACs and other appliances are reduced from 28% to 18%, there will be a straight 6% to 7% odd price reduction in the market, because normally GST is charged on the base price. So, this is phenomenal," he said.

Godrej Appliances Business Head and EVP Kamal Nandi said the tax cut would boost affordability and penetration in the Indian market, where AC penetration is still low at 9-10%.

This “ can help to make it more affordable to the masses and improve the quality of life for many Indians,” he said.

The move is also expected to benefit television makers.

Avneet Singh Marwah, CEO of Super Plastronics Pvt Ltd (SPPL), said the GST reduction will boost sales of smart TVs above 32 inches, which currently attract 28% tax.

“Brands can witness 20% year-on-year growth. This is a great comeback for ACs and Smart TVs,” he said, while urging the government to consider lowering GST on 32-inch TVs further to 5%.

The proposed GST changes come at a time when the air-conditioner industry has been battling weak demand due to unseasonal rains and early arrival of the monsoon. Listed players such as Voltas, Blue Star and Havells reported a revenue decline of 13-34% in their residential AC business during the June quarter.

Industry players said the GST cut, coupled with recent income tax reliefs and repo rate revisions, is expected to drive festive season demand, increase consumption and encourage buyers to opt for energy-efficient models.