How Taxation Changes Are Shaping Startup Consumer Durable Brands

Today, India’s consumer durables sector is experiencing robust growth, with projections indicating that it will become the fourth-largest market for consumer durables globally by FY27. This rapid expansion is being fueled by strong consumer demand and innovation, with startups playing a key role in shaping the industry. However, the dynamic changes in taxation policies, including GST, import duties, and corporate tax reforms, are having a significant impact on how these startups operate. These changes affect everything from product pricing and profitability to sourcing and compliance, making it essential for new players to adapt quickly to stay competitive in a growing market.

Impact of GST:

The introduction of Goods and Services Tax (GST) has streamlined the complexities of indirect taxes and made tax compliance much easier. However, for startups in the consumer durables market, GST again introduces a level of added complexity. Products that fall in categories like home appliances, electronics, and other consumer durables are subjected to GST rates between 18% and 28%. This high tax rate may escalate the final retail price and consequently affect demand greatly, especially in price-sensitive markets.

These high tax rates could become issues for startups, especially in price-sensitive markets. For example, an air conditioner or a new washing machine brand must also add GST to their product, and that raises the retail value of the item. In such tier 2 and tier 3 cities, price sensitivities are higher, and that could reduce demand and lead to absorption by startups to maintain competitiveness. In contrast, other established players may benefit from economies of scale in managing such costs. For startups, where resources are limited, the struggle is trying to reconcile profitability with low-cost offerings.

The Role of Import Duties and Sourcing Challenges

A significant proportion of consumer durables in India are manufactured using imported components, such as microchips, motors, and screens. The rise in import duties, aimed at boosting local manufacturing under the "Make in India" initiative, has led to higher costs for startups relying on imported raw materials. This affects their margins, as the added duty increases production costs.
Although the government's push for local manufacturing is a positive step for long-term sustainability, many startups still struggle with limited access to affordable, high-quality domestic alternatives. While some components are now being produced locally, they often do not meet the required quality standards or are more expensive than their imported counterparts. As a result, startups are forced to either raise prices or accept thinner margins.

Corporate Tax Reforms 

In a bid to foster industrial growth, the government has introduced several corporate tax reforms aimed at promoting manufacturing. One of the most notable reforms is the reduced corporate tax rate of 15% for new manufacturing firms. This reduction encourages startups to set up production facilities in India, thereby lowering their overall tax burden and freeing up capital for other investments, such as marketing and R&D.

Compliance Costs and Operational Strain

As India transitions to a more digitized tax system, with requirements for monthly GST filings, e-invoicing, and audits, startups must invest in robust accounting systems and legal expertise to ensure compliance. For small companies with limited resources, this added operational complexity can be a significant financial strain.

Additionally, startups that rely on global services such as cloud platforms or digital advertising face tax liabilities on imported services, further raising their costs. This tax burden not only affects profitability but can also hinder innovation, as startups are left with fewer resources to invest in product development or expanding their product portfolios.

(The above given article has been written by Harshit Aggarwal, Founder & CEO of Novamax Appliances)