Govt monitors GST rate cut transmission on over 50 items; awaits Sept-end field reports

GST 2.0

The government is closely tracking whether companies are passing on the benefits of the recent Goods and Services Tax (GST) rate cuts to consumers, with multiple officials indicating that any action will only follow once field inputs are analysed at the end of September.

“The government is monitoring whether GST benefits are being passed on. We are awaiting field formation inputs by September 28. We can't have knee-jerk reactions to fresh reforms, and have to wait for them to settle,” a senior government source said.

Another senior government source added that more than 50 products across categories are under review. “We await inputs by the end of the month on prices of over 50 items which are being monitored by field formations across India,” the official said.

Transmission mostly visible

According to initial monitoring, officials estimate that almost 90 percent of sectors are already reflecting the tax cut in their pricing, though smaller retailers who are not registered under GST are expected to take more time until their old stock clears. Larger companies, including cement and automobile firms, are expected to lead the transition, while e-commerce platforms are also being closely scrutinised to ensure compliance.

“The big businesses came on board. This is going to be top-down. Let the big businesses do it, then the smaller ones will follow,” the second official noted.

High-end brands are already passing on the tax cuts in new stock, but officials cautioned that older inventories and unregistered dealers may not immediately reflect the change. “Especially the unregistered dealers, I think they will not be able to pass it on. Their already old stock is there. The structure of GST is what it is. They may not be able to pass it on. But at the end of the day, the whole value chain will show benefits,” a third senior government source said.

Addressing structural challenges

Officials also highlighted the issue of inverted duty structures, where taxes on inputs are higher than those on finished products, leading to blocked credits. “For inverted duty, we are planning an automatic refund system for which an amendment will be made,” the third source added.

The government expects the impact of rate cuts to be more visible during the upcoming festive season, when consumer purchases typically peak. However, officials reiterated that reforms of this scale take time to fully stabilise, and enforcement measures will only be considered once sufficient evidence from field reports is available.

The monitoring exercise follows the decisions taken at the 56th meeting of the GST Council earlier this month, where the government unveiled a major overhaul of the indirect tax system, widely described as GST 2.0. The reform package simplified the rate structure to two slabs – 5 percent and 18 percent – from the earlier multi-tiered system.

Q1. What are GST rate cuts?
GST rate cuts refer to reductions in the Goods and Services Tax on specific goods and services, aimed at making them more affordable for consumers and boosting demand.

Q2. Why is the government monitoring rate cut transmission?
The government wants to ensure that the benefit of lower tax rates is passed on to consumers in the form of reduced prices, rather than being absorbed by companies as higher margins.

Q3. Why might small retailers take longer to pass on cuts?
Small, unregistered retailers often sell from old stock purchased at higher tax rates. Until this inventory clears, they may not immediately adjust their prices.

Q4. What is an inverted duty structure?
An inverted duty structure arises when inputs attract higher GST than the final product, leading to blocked credits for manufacturers. The government is working on an automatic refund mechanism to ease this.

Q5. When will the government take action?
Field formation reports on over 50 items are expected by the end of September. Only after analysing these inputs will the government consider further steps to ensure compliance.