International Journal of Social Science Research (IJSSR)

GST and Investor Behavior How Tax Reforms Influence Risk Preferences

A revolutionary tax reform, India's Goods and Services Tax (GST) significantly affected risk preferences, market volatility, and investor behavior. Although simplifying the tax system was GST's primary goal, its impact on investment decisions and financial markets is very noteworthy. Initially, as investors reacted to changes in taxation rates across several sectors, GST generated short-term uncertainty and volatility. Market mood did, however, eventually settle, and companies which benefited from tax breaks—including FMCG, e-commerce, and logistics—saw rising investor confidence. After GST, investor risk preferences altered; they shifted their portfolios to tax-efficient industries while reducing exposure to highly taxed companies such luxury goods and real estate. Market fluctuations are much influenced by behavioral biases like overconfidence, herd mentality, and loss aversion. Policy stability, transparent taxation systems, and better investor awareness are needed if we are to properly benefit from GST. Improved regulatory collaboration, strategic tax changes, and incentives for high-impact businesses might all assist to raise investor confidence. GST has to be linked with economic stability and investment-friendly policies if India's evolving economy is to have long-term market growth and financial resilience.