Sandipan Mitra is the CEO and co-founder of Pice. He boasts eight years of experience in the B2B and fintech sector. Sandipan's journey includes significant roles at multiple Indian Unicorns Including Product at PayU, and as founding member / VP, Product at Open Financial Technologies.
GST simplified taxation by merging multiple indirect taxes, but its impact varies widely across household spending categories.
Basic food items and public services are mostly exempt or taxed at lower rates, benefiting low and middle-income households.
Daily-use goods like cooking oil saw price drops, but appliances, kitchenware, and branded goods became costlier due to higher GST slabs.
Service costs, including telecom, banking, and insurance, increased under the flat 18% GST rate, adding pressure to family budgets.
While GST brought transparency and structure, its real benefit depends on each household's consumption patterns and spending behavior.
When the Goods and Services Tax (GST) came into force in India in July 2017, it represented a revolutionary change in the indirect tax levies in the nation. By integrating several indirect taxes like VAT, service tax, excise duty, and others, GST proposed to make the tax structure easier, increase compliance, and make a single national market by reducing the tax burden.
However, household spending has been affected by the effect of GST, which has been mixed across industries and income levels. While certain commodities have become cheaper under the GST tax slab, others have increased in price.
In this blog, we shall examine the details of how GST has influenced input tax credit on household item budgets and whether the common man has indeed benefited.
1. GST on Daily Use Products
Everyday-use products are the backbone of any household budget. These are recurring expenses and necessary items, from toiletries and groceries to kitchen utensils and small electronics. The GST system has streamlined tax rates on many products, with some having tax rate reductions and others seeing increases.
For example, refined cooking oil is a common feature in every Indian household. Before GST, the tax on such food oils was as much as Rs. 22–23 on a base value of Rs. 200. After GST rate slabs were introduced, the tax was reduced to about Rs. 10, with substantial savings for consumers.
Domestic appliances, such as mixers, fans, and refrigerators, have become more expensive due to the regular 18% GST rate slabs. Even mundane items like plastic containers, dairy machinery, kitchen utensils, electronic appliances, and toilet items have witnessed a rise from 12% to 18%.
Recently, Nirmala Sitharaman has also raised the average rate of GST on footwear, clothing, and textiles from 5% to 12%, putting extra pressure on household expenditure.
Although taxation has been somewhat consistent and standardised, the changing rates have made budgeting somewhat more uncertain, especially for middle-class households seeking to maintain a strict budget.
2. Services Under GST
Services, the other most crucial constituent of contemporary domestic spending, have been affected differently. Today, the majority of households spend consistently on services like telecom, banking, insurance, and even holidays. In GST, most of these services are charged a uniform rate of 18%, above the earlier service tax rate of 15%.
Consider telecom services, for example. Your phone and internet charges must have increased marginally under GST. Likewise, financial services such as banking, loan charges, and insurance premiums have become pricier because of the flat 18% rate.
Regarding travel, the GST effect varies based on the travel class. Economy travel, airfares and train travel have witnessed a reduction in the tax rate (from 6% to 5%), and the everyday traveller is the gainer. However, business class fares incur a high GST slab of 12%, which makes them more expensive. Different road and rail transport tax policies can affect intercity and daily commute expenses.
The government has exempted several products and services from GST to safeguard the weaker sections and minimise the tax on essentials. These include food products, such as unprocessed cereals, pulses, fresh fruits, vegetables, unprocessed milk, meat, and fish.
Public goods like education, health services, and travelling by train (sleeper class and short-distance trains) are exempt. The exemptions help provide for a household's basic requirements without any extra burden of taxes.
Healthcare services are exempt from GST, but medicines are subject to GST in slabs of 5%, 12%, and 18% based on the nature of the drug. Although this still means some imposition on health-related spending, the exemption of hospital services provides some respite.
These exemptions are very important in curbing inflation, particularly among low, and middle-income households. However, the indirect impacts of GST on supply chains and logistics could still create price inflation in exempted products in the long run.
Has GST Benefited a Standard Indian Household?
The benefit of GST for a standard Indian household has a two-fold perspective. The advantage of GST to an average Indian family depends on its income level, lifestyle, and consumption patterns.
Households buying mainly exempted or low-rate items (e.g., staples, sleeper-class transportation, health services) have benefited somewhat. However, families that frequently use telecom, banking services, appliances, branded clothing, or kitchenware might experience the bite of higher GST.
Suppliers and sellers benefit from streamlined operations due to GST compliance, but tax increases are passed on to consumers. For those dependent on corporate social services, input tax credit limitations now exist, which could dampen the incentive for businesses to undertake CSR activities that benefit communities.
Conclusion
Overall, GST rates has undoubtedly reshaped the financial dynamics of Indian households. While it has brought greater transparency and standardisation in taxation, the impact on household budgets varies depending on spending habits and income levels. Essentials and public services have remained affordable due to exemptions, offering relief to lower and middle-income families.
However, rising costs in services, branded goods, and household appliances have added pressure to day-to-day expenses. Ultimately, GST has created a more structured tax system, but whether it benefits or burdens a household hinges largely on their consumption profile and adaptability to the evolving tax landscape.
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FAQs
How has GST affected the prices of essential household goods?
GST has streamlined the tax rates on essential goods, leading to both increases and reductions. Items like cooking oil, cereals, and unprocessed foods are taxed minimally or exempt, helping reduce costs. However, products like kitchen utensils, plastic containers, and appliances have seen tax hikes from 12% to 18%. This has made daily-use durable items more expensive. The overall impact depends on the type and frequency of goods purchased.
Did GST make services like mobile, banking, and insurance more expensive?
Yes, services became costlier under GST. Earlier taxed at 15% under the service tax regime, most services now attract a flat 18% GST. This includes telecom, banking, mutual fund charges, and insurance premiums. The increase, though marginal, adds up in monthly household expenses. Households that rely heavily on such services experience a noticeable cost rise.
What items are exempt from GST that help reduce household costs?
unprocessed food (like cereals, pulses, milk, and vegetables), basic education, and healthcare services. Sleeper-class train travel and short-distance commuting by rail also remain untaxed. These exemptions are designed to protect low- and middle-income households and ensure affordability of daily necessities.
Are there any benefits of GST for a middle-class Indian household?
Yes, but they are mixed. Households that consume largely exempt or low-GST items see cost savings and greater transparency in pricing. However, the rise in rates for appliances, clothing, and services can offset these benefits. For the middle class, effective budgeting has become more important due to variable tax impacts. The system benefits those with basic consumption patterns more than those with aspirational lifestyles.
Has GST reduced or increased household financial stress overall?
The answer depends on the household's consumption profile. For basic goods and essential services, financial stress has reduced due to exemptions or lower rates. However, households spending more on branded items, electronics, and services face higher costs. Though GST aims for long-term simplicity and compliance, its short-term effects vary, making budgeting slightly more complex for many families.
Sandipan Mitra is the CEO and co-founder of Pice. He boasts eight years of experience in the B2B and fintech sector. Sandipan's journey includes significant roles at multiple Indian Unicorns Including Product at PayU, and as founding member / VP, Product at Open Financial Technologies.
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