Cool Relief: GST Cut on Air Conditioners Sparks Market Surge Across India

On September 22, 2025, the Government of India implemented a major reform in the Goods and Services Tax (GST) structure, reducing the GST rate on air conditioners (ACs) from 28% to 18%. This change is part of the broader GST 2.0 initiative, which simplified the tax regime into three slabs—5% for essentials, 18% for standard goods, and 40% for luxury items.

The reduction in GST has led to a direct price drop of ₹1,500 to ₹3,500 per unit, depending on the model and brand. This has made ACs significantly more affordable, especially for middle-class households. On the first day of implementation, retailers reported a surge in sales, with some outlets witnessing double the usual volume. E-commerce platforms also saw a 30–35% increase in sales of ACs and TVs, indicating strong consumer response.

Industry leaders, including Blue Star and Panasonic, have certainly welcomed the move, anticipating long-term growth in the sector. Blue Star projects a 15–20% industry growth by the end of financial year 2026 (April 2026), driven by increased adoption of energy-efficient models. The GST cut is expected to accelerate premiumisation, as consumers now find high-efficiency ACs more accessible. However, some manufacturers noted a temporary dip in sales prior to the rate change, as consumers postponed purchases in anticipation of lower prices. Despite this, the festive season timing—coinciding with Navratri and Diwali—has helped offset short-term lulls and boost demand.

The GST reduction on air conditioners marks a key shift in India's consumer durables market. By making ACs more affordable and encouraging energy-efficient purchases particularly in the context of inverter ACs, the initiative not only boosts demand but also aligns with sustainability goals. As the market adjusts, manufacturers and retailers are poised to benefit from increased penetration and evolving consumer preferences.

The GST reform is part of a larger strategy to stimulate consumption and increase disposable income. Combined with recent income tax cuts and repo rate adjustments, the policy aims to inject liquidity into the economy and support retail and manufacturing sectors.

Find out more in our latest edition India AC and Ventilation reports

Source: Himanshu Labroo, BRG Research

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