Redditor Claims Gym Pocketed GST Cut By Raising Base Fee In Viral Post: Is It Illegal Profiteering? Legal Experts Answer

(MENAFN- Live Mint) In a viral post on the social media platform Reddit, a user recently claimed that he and his friend had to pay the same membership fee even after the GST applicable rate was slashed from 18% to 5%.

“My friend and I joined the same gym a few days apart and saw something fishy. On 19 September, he was billed ₹5,084.75 + 18% GST ₹915.25 = ₹6,000. But on 23 Sept, I was billed ₹5,714.29 + 5% GST ₹285.71 = ₹6,000,” the Redditor said in the post.

“Basically, the moment GST on fitness services dropped from 18% to 5%, the gym raised the base fee so the total stayed the same, meaning instead of passing on the tax benefit, they pocketed the ₹630 difference which looks like profiteering and under Section 171 of the CGST Act, 2017 tax cuts are supposed to be passed on to consumers,” he added.

The user then inquired about the legal options available in this case.

LiveMint spoke with several legal experts, and here's what they had to say.

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“The gym increasing the base price to offset the reduced GST and keep the total payable amount the same could be seen as profiteering,” said Kamal Aggarwal, Senior Advisor, Singhania & Co. He added that businesses were liable to pass on the benefits of rate rationalisation to consumers under Section 171 of the CGST Act, 2017. However, this has been held as a sunset clause, effective 1 April 2025.

Shashank Agarwal, Founder, LegumSolis, said that the government or the National Anti-profiteering Authority may examine whether the benefit of the GST rate cut has been passed on to the consumer or not.“Such an application or 'request for examination' can be filed by any person/consumer, however, up to a certain date as may be notified by the government,” he added.

Alay Razvi, Managing Partner at Accord Juris, also agreed that this practice may amount to illegal profiteering. He stated that complaints can be submitted online through the official portals, by mail, or via email. Evidence, such as invoices or communications, showing the non-passing of GST benefits is required.

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According to Rahul Sateeja, Partner, DMD Advocates, following the recent GST rate cuts, the government has issued an FAQ document that allows consumers to report their queries or grievances to the National Consumer Helpline (NCH) via the toll-free number 1915 or WhatsApp at 8800001915.

“Complaints can also be registered on the Integrated Grievance Redressal Mechanism (INGRAM) portal,” he said.

Things to keep in mind while filing a complaint

Experts suggested that while filing a complaint, consumers must provide invoices or bills showing the old and new GST rates, or evidence that the prices remain the same despite the rate reduction.

The Consumer Affairs Ministry forwards such complaints to the relevant companies and may initiate further action.

“Raising a complaint not only enables individual consumers to access the benefits they are entitled to but also improves the accountability of businesses to pass on such rate reductions,” Sateeja added.

“While enforcement is often more visible against larger corporations, the law theoretically protects all consumers and applies to businesses of any size, including gyms,” Razvi said.

GST rates cut ahead of festive season

Also Read | In Arunachal Pradesh, PM Modi hails next-gen GST reforms as 'double bonanza'

Earlier this month, the government announced simplification and rate rationalisation of GST . Compared to the four slabs previously, there are now only two slabs - 5% and 18% - under the tax regime. Sin goods like cigarettes will attract a 40% tax.

On 21 September, on the eve of the implementation of the new slabs, Prime Minister Narendra Modi said that along with the income tax reforms announced in the Budget 2024-25, the GST cuts are expected to provide an additional monetary support of ₹2.5 trillion to Indians ahead of the festive season.

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