Recent amendments to India’s Goods and Services Tax aim to stimulate growth across sectors, with notable reductions in automotive, healthcare, and renewable energy, while raising concerns in airlines and textiles as stakeholders navigate the complex transition.
The recent updates to the Goods and Services Tax (GST), approved by the GST Council on September 3, 2025, have prompted a wide array of reactions across different industries. Some are upbeat, while others expressed reservations, especially within the automotive aftermarket and allied sectors. These reforms are aimed at streamlining the tax system and reducing rates on a variety of consumables as well as capital goods. Many see them as a crucial step towards shaping India\u2019s economic path, particularly just ahead of the festive season, which usually boosts consumer spending.
In the automotive world, the GST rate adjustments have generally been welcomed. Auto manufacturers have appreciated the abolition of the GST Compensation Cess on cars, which translates to notable tax cuts\u2014up to 13 percentage points on small and medium vehicles priced under \u20b914 lakh, and around 8 to 10 points for luxury models with engines above 1200 cc. Such reductions are expected to make vehicles more affordable and trigger increased demand. Interestingly enough, this optimism was reflected in the stock markets where auto stocks rose to an 11-month high, with Mahindra & Mahindra and Eicher Motors hitting record highs. Financial analysts from firms like CLSA and Jefferies pointed out that the reduction, especially in the 18% GST slab for smaller cars and bikes, could encourage more home-grown consumption, which is becoming more vital in light of global trade issues\u2014like the elevated U.S. tariffs on Indian auto exports.\n\nThat said, there are a few concerns about the transition period. Auto dealers in particular worry about what will happen to unsold inventory bought before the new rates take effect on September 22. They\u2019re seeking clear guidance on how to handle GST Compensation Cess on these older vehicles, emphasizing the importance of clarity to ensure the distribution process continues smoothly without hiccups.\n\nThe insurance industry is also seeing a mixed effect from these new policies. On one side, the exemption of GST on personal life and health insurance policies could lead to higher insurance penetration and make these products more affordable. But, on the flip side, experts warn that by removing input tax credits for insurers, operational costs could go up, squeezing profit margins. Industry leaders have welcomed the move as a positive step to broadening insurance access, but they are calling for measures to offset any additional financial burden.\n\nFor pharmaceuticals and healthcare, the reaction has been unanimously positive. The GST cut from 12% to just 5% on a broad range of medical items\u2014including diagnostic kits, reagents, and surgical equipment\u2014is expected to cut treatment costs and improve access to essential health technologies. This move is seen as vital for expanding healthcare coverage and improving overall public health in India.\n\nRenewable energy, on the other hand, stands to gain significantly. The GST rate on key components like solar PV modules and wind turbines has been cut from 12% down to 5%. This decrease is likely to lower project costs by roughly 5%, potentially pushing down clean energy prices and helping India reach its goal of 500 GW of non-fossil fuel capacity by 2030. Still, challenges remain\u2014such as renegotiating existing power purchase agreements to reflect these lower costs. Some renewable companies have announced plans to pass savings onto consumers, giving a boost to stalled projects and potentially spurring a new wave of investments.\n\nManufacturers of consumer appliances are optimistic too. They believe the reduction in GST will lead to increased demand, especially with the festive shopping season approaching. This aligns with the government\u2019s broader goal of encouraging domestic consumption and economic growth\u2014by consolidating the tax slabs from four to just two main rates: 5% and 18%, plus a 40% Levy on luxury items.\n\nOf course, not everyone is entirely happy. The airline industry, for instance, is worried about the higher GST on non-economy class seats, fearing that this could hit demand for premium travel. Vegetable oil producers have also raised concerns, particularly about the inverted duty structure\u2014where GST on raw materials is higher than on finished goods\u2014a problem the GST Council previously addressed for fertilisers and textiles but remains unresolved for edible oils. Additionally, small entrepreneurs have expressed concern over the increase in GST on labour charges from 12% to 18%, fearing it could add to operational costs and slow down their growth.\n\nThe textile sector, meanwhile, welcomed the lower taxes on manmade fibers and cotton, but criticized the 18% GST now applied to garments costing above \u20b92,500. This includes a lot of popular categories, like woollens, wedding wear, handlooms, and embroidered garments\u2014items often bought by everyday consumers. Representatives from groups like the Cloth Manufacturers Association of India warn that this move could make such clothes prohibitively expensive, potentially impacting domestic sales and even the preservation of traditional textiles.\n\nIndustry experts have generally lauded the GST reforms as well-timed and growth-promoting. They expect better compliance, lower inflation, and easier doing business. Still, they also emphasize that smooth implementation and clear communication are essential to maximize benefits and avoid unintended disruptions in the economy.\n\nSumming it all up, while these rate cuts promise to breathe new life into multiple sectors\u2014including automotive, healthcare, renewable energy, and consumer goods\u2014the varied reactions highlight how complex and nuanced major tax reforms can be. Stakeholders stress the importance of addressing sector-specific issues as the rollout continues, so the full potential of these policy changes can truly be harnessed.
Source: Noah Wire Services
