New Delhi: As the biggest reform in India's goods and services taxes rolls out today, the Centre will be monitoring whether companies actually pass on the tax cuts or keep the gains to themselves.
The government will keep a “discreet oversight” on how the tax cuts unfold, but avoid any intrusive use of administrative machinery, two persons privy to official discussions said. However, it will not hesitate to put in place a formal mechanism if corporate profiteering manifests.
The Centre is optimistic that businesses will honour their public commitments to reduce prices, but the option of a formal enforcement mechanism has not been ruled out if consumers fail to see the relief, the people cited above said on the condition of anonymity. The tax cuts followed Prime Minister Narendra Modi's promise of tax relief in his Independence Day speech. Finance minister Nirmala Sitharaman has committed to ensuring that the benefits reach households.
Keen watch
All government departments are conscious of the need to ensure consumer benefit and will be watching prices, one of the two persons cited above said. The government’s engagement with the industry will be of “vigilance and gentle persuasion” rather than invoking any administrative powers, the person added.
“If profiteering conduct is seen, the government can bring in the Competition Commission of India (CCI) at any time to address that. However, at the moment, that is not contemplated, and the signals coming from the industry indicate price reductions to pass on the benefit of the GST rate cut to consumers,” the person said.
Queries emailed to the finance ministry on Friday remained unanswered.
Anti-profiteering authority
In the early days of GST, there existed a formal mechanism to check companies pocketing the gains of tax cuts; however, that system ended in April this year. The principal bench of the GST Appellate Tribunal will continue to adjudicate on past cases, but no fresh complaints are being accepted by any authority.
Creating a short-term regulator to monitor profiteering is impractical because it would be difficult to wind it up later, the person cited above said.
“To ensure retailers pass on the benefit of the rate reduction to the final consumers, businesses have been advised to take steps, including instructing dealers to ensure the price charged to the consumer reflects the tax reduction. They also have the option to affix stickers about the revised price. These steps are expected to ensure that retailers pass on the tax cut benefit to the consumer, said the person.
Price cut ads
The government’s confidence about businesses lowering prices to reflect the GST rate reduction is backed by the proactive announcements made by companies through statements and newspaper advertisements. Companies like Life Insurance Corp. of India, United India Insurance Co., New India Assurance Co., cement manufacturer Nuvoco Vistas Corp. Ltd, sewing machine maker Usha, air-conditioner maker Whirlpool, healthcare and pharmaceutical company FDC, tyre maker MRF Ltd and child care products brand Chicco are among the numerous companies that have advertised price cuts to pass on the benefit of GST cuts.
Chandrajit Banerjee, director general of Confederation of Indian Industry (CII), said the industry body is encouraging members to ensure the tax cuts are passed on swiftly and transparently. “We are engaging with our members across sectors to revise price lists, recalibrate supply chains, and update retail points so that lower rates are visible to customers without delay,” said Banerjee.
Bringing the tax benefits to households will stimulate demand, strengthen consumer confidence and advance inclusive growth, Banerjee said.
FM's commitment
After the GST Council announced abolition of the 12% and 28% tax slabs and offered tax cuts on a host of products and services on 3 September, finance minister Sitharaman, who also chairs the Council, told Mint in an interview published on 5 September that her next big test would be ensuring that businesses pass on the benefit of rate cuts to the common man.
The tax relief covers a range of products and services such as packaged food, consumer electronics, individual health and life insurance policies, hotel accommodation, automobiles, cement, television sets and kitchen and tableware.
Experts pointed out that while affixing revised maximum retail price (MRP) stickers on unsold stock manufactured before 22 September is not mandatory in light of a government order on 18 September, businesses are strongly encouraged to do so to maintain transparency and avoid consumer confusion.
“It is important that the revised price sticker does not obscure the original MRP, and companies may consider adding a note such as 'Price revised due to GST rate change as per GST notifications September, 2025' to enhance clarity,” explained Rajat Mohan, senior partner at chartered accountancy firm AMRG & Associates.
“Additionally, we advise businesses to phase out old packaging materials by 31 March 2026 and ensure clear communication of revised prices through circulars to dealers, distributors, and retailers. These circulars should also be shared with the director, legal metrology (central government) and controllers of legal metrology in all states and union territories,” explained Mohan.
While newspaper advertisements are no longer mandatory, companies may still choose to publish revised prices in one English and one regional daily for added transparency, added Mohan.
Proactive compliance
The transition to GST 2.0 will require companies to adopt a proactive compliance strategy to avoid operational and financial disruptions, Mohan said, adding that businesses must first update their internal compliance systems and ERP solutions. Equally important is strengthening documentation standards so that invoices, credit and debit notes, e-invoices, and e-way bills remain flawless, thereby preventing any blockage of input tax credit, Mohan said.
Policy makers believe that when leading players in a sector revise prices to reflect the reduced tax rates, others in the sector will be compelled to do so by market forces.
Also, despite not getting input tax credit facility, insurers like New India Assurance Co. have committed to fully pass on the benefit of entire 18% GST exemption to consumers on health and life insurance premium. The absence of credit facility for the taxes paid on inputs consumed by the insurance industry is feared to add to their costs of operations.
Lower GST rates are also expected to further speed up formalization of the economy as lower taxes reduce the temptation to stay out of the tax system.