VOL. 18, ISSUE NO. 7 | October 2025
Spotlight
INTRODUCTION
Recently the Government of India introduced changes in Goods and Service Tax (GST) regime with the objective of addressing the longstanding bottlenecks hampering export competitiveness and industrial growth. The reforms marked as “Next-gen GST reforms” envisages driving consumer demand and poses GST as a growth enabler rather than impediment. The major objectives of the GST reforms are:
- The GST rationalisation will lower retail prices thereby increasing demand. This higher demand may then translate into larger business volumes and higher economies of scale by improving productivity and efficiency.
- Greater competitiveness will enable firms to become more competitive both domestically and globally, attract better foreign direct investment and also ensure increase in manufacturing-led trade.
These reforms come at a time when India has recorded a 7.8% GDP growth, signalling strong economic momentum.
BENEFITS FOR THE INDUSTRY
The reforms underscore a commitment to making taxation more facilitative and less distortive, ensuring that GST acts as a growth enabler rather than an impediment.By focusing on improved refund timelines, simplified compliance, and rationalization of tax credits, the new GST measures are positioned as a key lever in India’s quest for export-led industrial transformation and integration with global supply chains. Below is a list of benefits for the industry and the exporters:
- GST slabs are now simplified from four to two (5% and 18% and 40% for some specific items): Exporters will benefit from simplified documentation procedures and easy HSN mapping. This will also reduce compliances and make online filing easier
- Lower inputs cost and improved margins: The GST is also meant to address the invested duty structures in manufacturing industry thereby making many raw materials and intermediate products more affordable. This will definitely reduce the cost of manufacturing and improve business margins
- Automated GST registration and refund process: As per the new reforms starting from November 2025 the following changes will be applicable:
- An optional simplified registration scheme which allows small and low-risk applicants to receive automated GST registration within three working days
- Faster GST refunds: From November 1st, 2025, exporters and SEZ suppliers will receive 90% of refunds provisionally and the risk evaluation will be system-led
- Similar provisional refunds will also be available in case of inverted duty structure. Fixing the inverted duty structure means manufacturers can now get quicker refunds, improving their cash flow.Earlier, exporters paid more GST on raw materialsthan on finished goods, which blocked their input tax credit. The new reform solves this issue
- An optional scheme offering automated registration within three working days for applicants whose output tax liability
pecific cases of GST benefits:
In the section below we highlight some specific instances where changes in GST is expected to facilitate the industry significantly especially in case of the engineering sector.
Renewable energy devices (HSN 84, 85, 94)
GST reduced from 12% to 5% for items like solar panels, windmills, biogas plants — making clean energy equipment more affordable and boosting green manufacturing.
Pumps (HSN 8413, 8414)
GST reduced from 28% to 18% and 5%, depending on type — lowering costs for irrigation, industrial, and domestic use.
Agricultural machinery (HSN 8424, 8432, 8433, 8436)
GST reduced from 12% to 5% — helping rural engineering units and farmers with cheaper equipment.
Textile machinery (HSN 8452)
GST reduced from 12% to 5% — supporting textile engineering firms and boosting competitiveness.
Three-wheelers (HSN 8703)
GST reduced from 28% to 18% — supporting small vehicle manufacturers and last-mile transport.
Bicycles (HSN 8712)
GST reduced from 12% to 5% — promoting eco-friendly transport and helping small-scale manufacturers.
Small cars (HSN 8703)
GST reduced from 28% to 18% — encouraging domestic sales and helping auto manufacturers offset export losses.
Motorcycles ≤350cc (HSN 8703)
GST reduced from 28% to 18% — making two-wheelers more affordable and boosting demand.
Buses (HSN 8702)
GST reduced from 28% to 18% — supporting public transport vehicle manufacturers.
Trucks and lorries (HSN 8704)
GST reduced from 28% to 18% — lowering logistics costs and helping commercial vehicle makers.
Air conditioners (HSN 841510)
GST reduced from 28% to 18% — benefiting HVAC equipment manufacturers
Lead-acid batteries (HSN 850710)
GST reduced from 28% to 18% — lowering costs for automotive and industrial battery producers.
Auto parts (Many HSN codes)
GST now uniform at 18% (earlier varied between 12–28%) — simplifying compliance and reducing confusion for auto component makers. The table below lists the engineering goods for which GST has been reduced.
Reform will enhance domestic demand and boost domestic manufacturing
Lower GST will enhance domestic demand: In majority of the engineering products with reduced GST, India’s exports to USA are substantial at >= USD 20 billion (at HS Code 4-Digit Level). While these products are destines to face lower shipment following the 50% increase in import Tariff by the US, demand for those products will increase in the domestic market as passing on the effect of lower GST to consumers will make those products cheaper.
Loss in US market will be partially offset by increased domestic sale: Higher demand and hence, higher sale in domestic market is likely to partially counterbalance the loss of business that the exporter will face in the US following the increase in tariff regime. However, the government and other stakeholders are on toe to find out effective avenues to negate the tariff hike and retaining the share in US market. Early conclusion of a bilateral trade Agreement with the US may be the most effective instrument to escape high tariff.
The boost to FDI
The GDT rationalisation is also seen as a part of India’s effort to make itself a global manufacturing and supply-chain hub. This coupled with tax stability, PLI-linked industrialisation, upcoming FTAs with major economies, and strategic connectivity initiatives can truly make the dream of “Make in India” a reality. By lowering barrier and simplifying compliance procedures, the GST reforms induce more confidence and trust among not only businesses but also insiders.
The table below lists the engineering goods for which GST has been reduced.
List of engineering products with significant export potential for which GST has been reduced
| HS Code (4 digit) | Product description | Reduction in GST | |
|---|---|---|---|
| From | To | ||
| 8708 | Parts and accessories of the motor vehicles of headings 8701 to 8705 [other than specified parts of tractors] | 28% | 18% |
| 8541 | (b) Solar power-based devices; (renewable energy devices and parts for their manufacture) | 12% | 5% |
| 9403 | Handicraft - Furniture of bamboo, rattan and cane | 12% | 5% |
| 4011 | Rear tractor tyres and rear tractor tyre tubes | 18% | 5% |
| 8409 | Parts suitable for use solely or principally with the engines of heading 8407 or 8408 | 28% | 18% |
| 7326 | Mathematical boxes, geometry boxes and colour boxes | 12% | 5% |
| 8413 | Pumps for dispensing fuel or lubricants of the type used in filling stations or garages [8413 11]; Fuel, lubricating or cooling medium pumps for internal combustion piston engines [8413 30] | 28% | 18% |
| 9404 | Coir products [except coir mattresses] | 12% | 5% |
| 8414 | Other hand pumps | 12% | 5% |
| 9018 | Instruments and appliances used in medical, surgical, dental or veterinary sciences, including scintigraphic apparatus, other electro-medical apparatus and sight-testing instruments | 12% | 5% |
| 8412 | (d) Wind mills, Wind Operated Electricity Generator (WOEG); (renewable energy devices and parts for their manufacture) | 12% | 5% |
| 8701 | Tractors (except road tractors for semi-trailers of engine capacity more than 1800 cc) | 12% | 5% |
| 7616 | Handicraft - Aluminium art ware | 12% | 5% |
| 8479 | Composting Machines | 12% | 5% |
| 7323 | Milk cans made of Iron, Steel, or Aluminium | 12% | 5% |
| 4016 | Erasers | 5% | Nil |
| 8419 | Solar water heater and system | 12% | 5% |
| 9405 | Hurricane lanterns, Kerosene lamp / pressure lantern, petromax, glass chimney, and parts thereof | 12% | 5% |
| 7419 | Brass Kerosene Pressure Stove | 12% | 5% |
| 8408 | Compression-ignition internal combustion piston engines (diesel or semi-diesel engines) | 28% | 18% |
| 8415 | Air-conditioning machines, comprising a motor-driven fan and elements for changing the temperature and humidity, including those machines in which the humidity cannot be separately regulated | 28% | 18% |
| 7317 | Animal shoe nails | 12% | 5% |
| 9001 | Contact lenses; Spectacle lenses | 12% | 5% |
| 9401 | Seats of a kind used for motor vehicles | 28% | 18% |
| 9022 | Apparatus based on the use of X-rays or of alpha, beta or gamma radiations, for medical, surgical, dental or veterinary uses, including radiography or radiotherapy apparatus, X-ray tubes and other X-ray generators, high tension generators, control panels and desks, screens, examinations or treatment tables, chairs and the light | 12% | 5% |
| 8716 | Self-loading or self-unloading trailers for agricultural purposes | 12% | 5% |
| 8432 | Agricultural, horticultural or forestry machinery for soil preparation or cultivation; lawn or sports-ground rollers; Parts [8432 90] | 12% | 5% |
| 8543 | (c) Solar power generator; (renewable energy devices and parts for their manufacture) | 12% | 5% |
| 8507 | Electric accumulators, including separators therefor, whether or not rectangular (including square) other than Lithium-ion battery and other Lithium-ion accumulators including Lithium-ion power banks | 28% | 18% |
| 7615 | Milk cans made of Iron, Steel, or Aluminium | 12% | 5% |
| 8706 | Chassis fitted with engines, for the motor vehicles of headings 8701 to 8705 | 28% | 18% |
| 8711 | Motorcycles of engine capacity (including mopeds) and cycles fitted with an auxiliary motor, with or without side-cars, of an engine capacity not exceeding 350cc; side cars | 28% | 18% |
| 8714 | Parts and accessories of bicycles and other cycles (including delivery tricycles), not motorised, of 8712 | 12% | 5% |
| 8525 | Two-way radio (Walkie talkie) used by defence, police and paramilitary forces etc | 12% | 5% |
| 8433 | Harvesting or threshing machinery, including straw or fodder balers; grass or hay mowers; parts thereof | 12% | 5% |
| 8424 | Nozzles for drip irrigation equipment or nozzles for sprinklers | 12% | 5% |
| 8422 | Dish washing machines, household [8422 11 00] and other [8422 19 00] | 28% | 18% |
| 7418 | Table, kitchen or other household articles of copper; Utensils | 12% | 5% |
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