A 10-percentage-point cut in the Goods and Services Tax (GST) on ACs has sparked hopes of a ‘second summer’ during the festive season, offering a much-needed lifeline to companies reeling from a washed-out June quarter. With AC prices set to drop from 22 September, experts predict the tax cut will unlock pent-up demand and boost festive sales.
Earlier this week the GST Council cut the tax on ACs from 28% to 18% as part of a broader set of reforms that removed the 12% and 28% slabs and shifted most of those goods and services into the 5% and 18% slabs. It retained 40% GST for luxury and ‘sin’ goods.
A year to forget
Experts said the cuts offer timely relief to the AC industry, which has been struggling after a lacklustre summer and a generally dismal year.
A Mint analysis of six major consumer durable firms revealed that 25-33% of their annual revenue typically comes from June quarter alone. While their portfolios also include non-seasonal electrical goods, summer-driven AC sales still account for the lion’s share of revenue.
Summer accounts for nearly 70% of AC sales in a year, while the festive season contributes around 17%, experts said. This means a weak seasonal showing can mean a lost fiscal year for the AC industry, as FY26 has begun to demonstrate.
Summer slump
A separate Mint analysis shows the revenue and net profit of five major AC brands contracted year-on-year in the June quarter, amid a shortened and relatively mild summer. Heavy promotional pushes added to the strain, compressing net margins by 120 basis points and eroding profits, experts said.
But when summer arrived, trouble piled up – quite literally. “Brands and dealers stocked up aggressively, expecting another hot summer like last year,” said Keshav Lahoti, research analyst at HDFC Securities. “But weak sales left them with inventory pileups, hitting profits.”
After a weak Q1, the industry was saddled with nearly two months of excess inventory, prompting expectations of heavy festive-season discounts to clear stocks. With new Bureau of Energy Efficiency ratings kicking in from January 2026, companies face added pressure to liquidate inventory by the end of the year. This will keep pricing and profits under strain, Nuvama Institutional Equities noted in its latest report.
Nonetheless, experts said the upcoming GST cut could inject much-needed momentum into the industry. Dhruv Jain, consumer electronics analyst at Ambit Capital, said it could trim excess inventory from two months to just 15-30 days and reduce the likelihood of steep discounts.
“While margins should hold, industry volumes in FY26 may still swing between 5% decline and 5% growth, depending on Q3 performance,” Jain said.
Will GST cut spur demand?
Manoj Mishra, partner and tax controversy management leader at Grant Thornton Bharat LLP, said the GST cut could spur higher-than-usual festive demand for ACs, while seasonal promotions could further nudge discretionary spending.
A standard one-ton AC typically costs ₹30,000 and will be around ₹2,000 cheaper after the GST cut, experts said. While modest, this price drop could be enough to stimulate replacements and fresh purchases in India’s price-sensitive market, Mishra said.
Moreover, with new energy efficiency norms set to make ACs 3-4% costlier from next year, the December quarter should see a further demand bump, said Ravi Swaminathan, director at Avendus Spark Institutional Equities.
“People have also held back purchases after the GST cut announcement last month,” he added. “This pent-up demand is also likely to surface in Q3.”
With multiple demand drivers in play, the industry is now pinning its hopes on Q3 to turn around what has been a disappointing year so far. However, experts cautioned that while the GST cut increased the chances of a leaner entry into FY27 for brands and retailers, it would temporarily put orders to manufacturers on hold, hitting their top lines.
Short-term pain
The Nuvama report cited above noted that companies may stock up more cautiously this December, hurting the usual restocking cycle, while excess GST paid on inventories could also strain working capital.
“The AC industry is currently grappling with notable working capital pressures,” said Grant Thornton Bharat’s Mishra. “Excess stock has raised storage costs and tied up working capital, thereby straining cash flows.”
According to the Centre for Monitoring Indian Economy (CMIE) the industry took around 34 days on average to turn raw materials into cash from sales in FY25, a significant improvement from 55 days before the pandemic. But experts said the recent summer-sale fiasco increased the cycle by 45-60 days, with tax-refund delays likely to add further short-term stress.
Despite such near-term challenges, experts saw the GST cut as a medium-term positive, with better affordability set to expand the number of customers and deepen India’s AC market.
