GST cut to reduce AC prices by Rs 2,000–3,000, offsetting energy-efficiency price hike: Report
Good news for shoppers in India: a recent cut in Goods and Services Tax (GST) on room air conditioners (RAC) could save you up to Rs 3,000 on each unit. This change offsets the price hikes expected from tougher energy efficiency rules, according to a new report from ratings agency ICRA.
The GST rate on sub-2-tonne RACs dropped from 28 percent to 18 percent as part of broader GST reforms. ICRA estimates this will trim prices by 6 to 8 percent, meaning savings of Rs 2,000 to 3,000 per air conditioner. Experts say this could spark more demand later in the financial year, giving buyers a real incentive to upgrade.
But there’s a catch. Starting January 2026, new Star label guidelines will push up energy efficiency standards for RACs, adding Rs 500 to 2,500 to the cost per unit. “This will partly cancel out the GST benefits,” said Kinjal Shah, senior vice president at ICRA. “Still, it might encourage pre-buying in the third quarter of FY2026, helping manufacturers recover from slower sales during the 2025 summer heat.”
Despite the price relief, air conditioner sales face headwinds. ICRA predicts a 10 to 15 percent drop in industry volumes for FY2026, blamed on unseasonal rainfall that cooled things down. Heavy rains from April to July 2025 cut heatwave days, leading to 15 to 20 percent lower sales in North and Central India— a sharp contrast to the 40 to 50 percent growth seen the year before.
Looking ahead, the RAC market in India shows promise. Low ownership rates, growing cities, and the need for replacements keep long-term demand strong. Manufacturers plan to boost production capacity by 40 to 50 percent over the next two years, backed by investments of Rs 4,500 to 5,000 crore.
The government’s Production-Linked Incentive (PLI) scheme will help too, aiming to ramp up local component making to 70 to 75 percent by FY2028—up from today’s 50 to 60 percent. This push for indigenization could make Indian-made air conditioners even more competitive.
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