From September 22nd, the GST rate on salons, gyms, and fitness centers was reduced from 18% to 5%, but the prices of these services have increased by 10–20%. The government's removal of Input Tax Credit (ITC) increased business operating costs, which in turn affected customers. The government has initiated an inquiry into the price increases.
GST rate cut: Under the new GST rates implemented from September 22nd, taxes on salons, gyms, yoga classes, and fitness centers were reduced from 18% to 5% to provide relief to customers. However, due to the abolition of ITC (Input Tax Credit), businesses' costs increased, leading to a 10–20% rise in service prices. The government has acknowledged that customers have not fully benefited from the tax cut, and monitoring and action are being taken on this matter.
Customers' hopes dashed, burden on pockets increased
In cities like Delhi, Mumbai, Pune, and Jaipur, customers observed that even after the GST reduction, bills started coming in higher than before. Many customers complained that they were paying more, despite the government reducing taxes. The situation is similar in smaller towns, where local salons and fitness clubs have also increased the prices of their services.
One customer stated that where a haircut or beauty service bill previously amounted to around 1000 rupees, the same services are now costing between 1100 and 1200 rupees. The same situation is being observed in gyms and yoga classes.
What is the real reason?
The primary reason for the price increase is the abolition of Input Tax Credit, or ITC. Previously, businesses could adjust a portion of the tax paid on their expenses as a refund. However, this facility has now been discontinued. This means that salons, fitness centers, and yoga studios are now required to pay the full GST on every expense.
Salon owners state that they have to pay up to 18 percent GST on electricity, rent, equipment, and cosmetic products, a burden they now have to bear themselves. Therefore, they decided to increase prices. If they continued to offer services at the old rates, their businesses would operate at a loss.
Businesses state: The increase is unavoidable
The owner of a large salon chain in Mumbai stated that they did not reduce rates even after the GST cut because the removal of ITC increased their costs by 15 to 20 percent. He added that customers perceive them as overcharging, but in reality, the change in the tax structure has increased their operational expenses.
Similarly, several gym owners explained that they previously benefited from ITC on their equipment and maintenance. However, they now have to pay full tax on every purchase, which has increased their expenses. They stated that if they were to absorb these costs themselves, their businesses would not be sustainable.
Government also acknowledges the problem
Government officials have also acknowledged that customers are not receiving the full benefit of the GST rate reduction. A senior official from the Ministry of Finance stated that prices have increased in several services after the removal of Input Tax Credit. The government has also received complaints regarding this matter.
However, he also mentioned that prices are not fixed for many services, making it difficult to monitor them. Investigations have been initiated in some areas, but maintaining control in the unorganized sector remains a challenge.
The growing momentum of the beauty and fitness industry
Despite the price increases, the momentum of the salon and fitness industry has not slowed down. Even in Tier-2 and Tier-3 cities, people are not holding back from spending on their looks and health. According to industry data, the beauty and fitness sector is growing at an annual rate of 12 to 15 percent.
Many major brands are now opening their salons and gyms in smaller cities as well. Customer numbers are rapidly increasing in these locations, although the price hikes have made them a bit cautious.
Maximum impact on the unorganized sector
Small salons and local gyms are bearing the brunt of this change the most. They lack the resources to handle complex tax procedures. Consequently, they are directly passing on the costs to customers. Meanwhile, large chain companies are trying to adjust this within their business models.
