Will GST Reduction Lower AC Prices by Rs 2,000–3,000?
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Synopsis
The recent GST cut for room air conditioners is set to bring down prices significantly, allowing consumers to save up to Rs 3,000. While this reduction is promising, new energy efficiency regulations may create a mixed market landscape. Will this balance consumer savings with rising costs?
Key Takeaways
- GST reduction will lower AC prices by Rs 2,000–3,000.
- The GST rate on RACs is now 18 percent.
- New energy efficiency standards may raise prices by Rs 500–2,500.
- Industry volumes may decline by 10–15 percent in FY2026.
- Long-term growth is supported by urbanization and replacement demand.
New Delhi, Sep 25 (NationPress) The recent decrease in Goods and Services Tax for room air conditioners (RAC) is expected to reduce consumer prices by up to Rs 3,000, effectively countering the predicted rise in costs due to new energy efficiency regulations, as reported on Thursday.
The GST cut on sub-2-tonne RACs is anticipated to lower prices by about 6–8 percent, resulting in savings of approximately Rs. 2,000–3,000 per unit, providing a notable incentive for consumers, according to an ICRA report.
The GST rate for RACs was reduced from 28 percent to 18 percent as part of the GST 2.0 reforms. This could potentially stimulate demand later in the financial year, the report highlighted.
Additionally, the forthcoming Star label guidelines, set to take effect in January 2026, are likely to increase RAC prices by Rs 500–2,500 per unit, aimed at improving energy efficiency.
“The changes in the Star label will partially offset the advantages gained from the GST reduction. However, it may encourage pre-purchasing in Q3 FY2026, assisting OEMs in recovering sales that were lost during the summer of 2025,” stated Kinjal Shah, Senior Vice President and Co-Group Head at ICRA.
Despite the price reductions, industry volumes are projected to drop by 10–15 percent year-on-year in FY2026 due to an unusual decline in summer demand resulting from unexpected rainfall between April and July.
“The unusual and excessive rainfall diminished the number of heatwave days, leading to a 15–20 percent decrease in sales during April-July 2025, particularly in North and Central India, compared to a robust 40–50 percent increase in the same period the previous year,” ICRA noted.
ICRA emphasized that low penetration, rising urbanization, and replacement demand will support the industry’s long-term outlook.
The research firm predicts a 40–50 percent expansion in manufacturing capacity over the next two years, bolstered by capital expenditures of Rs. 4,500–5,000 crore.
The government’s Production-Linked Incentive (PLI) scheme is also expected to significantly increase the indigenization of components, reaching 70–75 percent by FY2028 from the current 50–60 percent, as noted by ICRA.
Point of View
I view the GST reduction as a double-edged sword. While it offers immediate financial relief to consumers, the upcoming energy efficiency regulations may create an unbalanced market. It’s essential for stakeholders to stay informed and adapt to these changes for sustained growth.
NationPress
25/09/2025
Frequently Asked Questions
How much will GST reduction lower AC prices?
The GST reduction is expected to lower AC prices by approximately Rs 2,000–3,000 per unit.
What is the new GST rate on RACs?
The new GST rate on room air conditioners has been reduced from 28 percent to 18 percent.
When will the new energy efficiency standards take effect?
The new Star label guidelines for energy efficiency are set to take effect in January 2026.
What impact will the price reduction have on the market?
While the price reduction will benefit consumers, it may also lead to a decline in industry volumes due to weather-related demand issues.
How does urbanization affect the AC market?
Rising urbanization is expected to support long-term growth in the air conditioning industry, despite short-term challenges.
