GST 2.0 Cut Taxes , But Will You Really Pay Less?

Writer - Rehaan Gulati

Editor - Samarveer Singh

Introduction

The Goods and Services Tax (GST) was introduced by the Government of India in 2017 as a reform in indirect taxation to replace the complex system of excise duties, state-level VATs, and service taxes with a single “one nation, one tax.” system. It promised simplification, reduced inefficiencies, and greater ease of doing business, however, multiple tax slabs, frequent rate revisions (we’ve all seen the Salted vs Caramel Popcorn GST rate memes), delayed refunds, and recurring disputes over classification meant the GST regime was neither as simple nor as business-friendly as envisioned.

In September 2025, the government introduced a major rework, widely described as GST 2.0. This reform collapsed the number of slabs by eliminating the 12 % and 28 % categories. Nearly 90 % of goods previously taxed at 28 % shifted down to 18 %, while almost all goods in the 12 % slab were moved to 5 %. A new 40 % slab was created for luxury and demerit goods such as premium cars, tobacco,  and sugary drinks. Insurance premiums, including health and life insurance, were either reduced or exempted. The government’s stated goals were to simplify the tax system, reduce consumer burdens, stimulate demand, and improve compliance . Yet a critical question remains: to what extent will these statutory tax reductions actually be passed on to consumers in the form of lower prices? 

The Role of Market Dynamics

Although in an ideal scenario a cut in tax rates should translate directly into a proportional decrease in consumer prices, the extent to which tax reductions are passed on depends not just on the statutory rate cut itself, but on the competitive pressures firms face, the flexibility of their supply chains, and the strategies they adopt in responding to consumer expectations.

The automobile sector is a telling example since few industries in India react as sharply to tax changes, with competition and pricing dynamics shifting dramatically between budget and luxury segments. With GST 2.0 lowering the highest slab from 28 % to 18 % for most vehicles, companies in the intensely contested mass-market segment moved swiftly to announce price cuts. Tata Motors reduced prices across models like the Tiago and Nexon by between ₹65,000 and ₹1.55 lakh while Maruti Suzuki lowered prices of its Swift and Brezza by up to ₹1.29 lakh. These firms, which sell more popular models of cars,  didn’t cut prices just for compliance, but also as a necessity to retain their customers to a competitor offering better value.

Meanwhile, luxury carmakers such as Mercedes-Benz and BMW did announce price cuts — the S-Class fell by about ₹11 lakh and BMW’s X7 by up to ₹9.2 lakh — but relative to their ₹90 lakh-plus price tags, the reductions amounted to only around 10 % . Because their customer base is less price-sensitive and more driven by brand prestige, these companies face less of an incentive to reduce prices. For them, GST 2.0 became an opportunity to shore up margins rather than to expand sales volumes.

Even in sectors with strong competition, supply-chain dynamics can slow the transmission of tax cuts. Companies like Hindustan Unilever had inventories that were purchased under the old GST rates meaning that reductions could not immediately be reflected in shelf prices. Similarly, in industries reliant on imported components, such as electronics or auto manufacturing, firms often stagger price changes to avoid taking losses on existing stock. These frictions mean that even where firms are ultimately compelled to pass on benefits, consumers may only experience the relief gradually rather than overnight.

What about Regulation and Consumer Behaviour?

Whether GST 2.0 translates into genuine consumer savings depends not only on statutory rate cuts or competitive pressure but also on two additional forces: regulatory oversight and the behaviour of consumers themselves.

India’s GST law contains anti-profiteering provisions that require firms to pass on the benefits of tax reductions. On paper, this creates a legal guarantee for households. In practice, however, enforcement has been uneven. Regulators have sometimes intervened decisively — for instance, in insurance. Because premiums are tightly regulated and households are highly attentive to annual policy costs, insurers had little scope to retain the gains when health and life insurance were exempted from GST. The same applies to basic food items such as unbranded cereals since retailers cannot easily mask a tax cut when consumers know the pre-GST price of everyday staples.

However, in sectors where pricing is more opaque or where consumer expectations are weaker, these regulations do have workarounds. Once again luxury vehicles can be an example of this. While they did announce significant nominal reductions after the 28 % slab was lowered, the scale of these cuts was selective and uneven across models. By adjusting base prices upward or emphasising only certain reductions in marketing, firms were able to retain part of the tax benefit. A similar dynamic was reported in hospitality: several hotel chains reduced the GST component on invoices but simultaneously increased room tariffs, meaning that a ₹6,000-per-night stay still cost almost the same after “GST relief.” Such practices show how, without strong regulatory enforcement or transparent pricing, businesses can reframe their cost structures in ways that prevent households from feeling the full effect of the reform.

Consumer behaviour itself also determines the passdown effect.  In competitive markets such as automobiles and durable goods, buyers often delay purchases when they expect tax-driven price reductions. This dynamic was evident in the weeks after GST 2.0’s announcement, as demand temporarily softened while consumers waited for revised prices. Such behaviour can act as a disciplining force: firms that withhold benefits risk losing sales altogether. Yet consumer pressure does not work uniformly. In less competitive or less transparent sectors, households may lack the information or bargaining power to compel firms to pass on reductions quickly or fully.

Conclusion

The trajectory of GST 2.0 makes clear that statutory tax reductions do not automatically translate into equivalent consumer savings. Instead, their effect depends on how different sectors mediate the reform. Where competition is intense and prices are transparent in industries such as  mass-market automobiles or regulated insurance, firms had little choice but to pass on benefits promptly and visibly. By contrast, in markets where demand is less sensitive to price or where pricing structures are opaque, reductions were only partial, delayed, or offset by adjustments elsewhere. Luxury cars, hospitality, and imported consumer goods show how businesses can retain part of the gains while still appearing compliant.

This unevenness highlights that the real outcome of GST 2.0 lies not in the statutory chart of tax slabs but in the interaction between firms, regulators, and consumers. Competitive pressure, supply-chain dynamics, and consumer expectations often mattered as much as the rate cut itself in shaping final prices. As a result, the reform cannot be characterised simply as a uniform relief to households. Its impact is fragmented: significant for some, modest or imperceptible for others.

The critical question, then, is not whether GST 2.0 lowered taxes — it certainly did — but how far those reductions were transmitted through India’s diverse marketplace. The answer, as the evidence shows, remains uneven.