Mumbai: The recent rationalisation of Goods and Services Tax (GST) rates by the Government of India marks a targeted intervention to reduce input costs, improve working capital efficiency, and enhance the competitiveness of micro, small and medium enterprises (MSMEs) and the broader manufacturing sector. The measures, approved by the GST Council, address long-standing structural issues such as inverted duty structures and refund bottlenecks, particularly for small exporters and e-commerce consignments.
Among the most consequential changes is the removal of the value threshold for GST refunds on low-value exports. This amendment to Section 54(14) of the CGST Act, 2017 enables refunds for all exports made with payment of tax, regardless of consignment value. The reform is expected to significantly ease compliance for small exporters, especially those using courier or postal channels, and improve cash flow by unlocking refunds that were previously inaccessible due to value limits. By simplifying procedures and reducing working capital constraints, the move allows MSMEs and small sellers to participate more effectively in international trade.
The rate cuts themselves are broad-based, spanning sectors such as paper, leather, wood, textiles, food processing, toys, packaging materials, and commercial vehicles. For instance, GST on paper packaging, textiles, and leather has been reduced from 12–18% to 5%, directly lowering production costs and enabling more competitive pricing for exporters. Similarly, the reduction in GST on trucks and delivery vans from 28% to 18% is expected to reduce freight and logistics expenses, strengthening supply chains and improving margins across manufacturing and distribution networks.
The rationalisation also corrects inverted duty structures in key sectors like textiles and food processing, where input taxes previously exceeded output taxes, leading to refund delays and working capital blockages. By aligning rates more logically across the value chain, the reforms ensure smoother refund flows and reduce the financial strain on producers. This is particularly relevant for MSMEs, which often operate with limited liquidity and are disproportionately affected by refund delays.
Industry groups have broadly welcomed the changes, noting that faster refunds and rate adjustments will ease liquidity pressures and support domestic production. The reduction in GST on toys and sports goods from 12% to 5% is expected to incentivise local manufacturing and reduce reliance on imports, while also tapping into growing global demand. Eco-friendly products such as bamboo, bagasse and jute boards have also seen rate reductions, aligning fiscal policy with sustainability goals and global standards.
The cumulative effect of these reforms is a more predictable and efficient tax environment for manufacturers and exporters. By lowering input costs and streamlining refund mechanisms, the government has taken steps to reduce inflationary pressures and improve the viability of domestic production. These changes also support India’s ambition to become a global hub in sectors such as textiles, auto components, food processing and handicrafts.
Commerce Secretary Sunil Barthwal described the rationalisation as a decisive step in strengthening India’s manufacturing base and empowering MSMEs. He emphasised that the reforms deliver tangible benefits to producers, traders and exporters, reinforcing the broader vision of building an Atmanirbhar Bharat.
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