India cuts taxes on consumer goods to spur demand

September 04, 2025 (MLN): India has unveiled sweeping tax reforms aimed at boosting domestic demand and cushioning its economy against steep U.S. tariffs.

Finance Minister Nirmala Sitharaman announced late Wednesday that the Goods and Services Tax (GST) structure has been simplified to two slabs of 5% and 18%, replacing the existing four-rate system.

The move, approved by the GST Council comprising federal and state ministers, will take effect from September 22, coinciding with the Hindu festival of Navratri, as Bloomberg reported.

As part of the overhaul, GST on everyday consumer goods such as toothpaste, shampoo, and soaps has been reduced to 5% from 18%.

Taxes on small cars, air conditioners, and televisions have been cut to 18% from 28%.

Importantly, individual life and health insurance policies will now be exempt from GST.

However, a special rate of 40% will be applied to “super luxury” and “sin” goods, including cigarettes, tobacco, carbonated beverages, and high-end cars with engine capacity above 1,500cc.

The government estimates a revenue loss of Rs480 billion ($5.49 billion) due to the cuts but expects consumption growth to offset fiscal concerns.

Economists, including Soumya Kanti Ghosh of SBI, argue the measures will boost spending and may have little to no negative impact on the deficit.

The reforms are set to benefit consumer goods companies such as Hindustan Unilever and Godrej Industries, electronics giants Samsung, LG, and Sony, as well as automakers like Maruti Suzuki and Toyota.

Prime Minister Narendra Modi, who last month pledged to lower GST by October to counter U.S. tariffs of up to 50%, hailed the decision, saying the reforms would “improve lives of citizens and ensure ease of doing business for all, especially small traders and businesses.”

The tax cuts come after Washington imposed fresh duties on Indian goods in retaliation for New Delhi’s continued purchase of Russian oil, escalating tariffs to 50%.

The dispute threatens $48.2 billion worth of Indian exports to its largest market.

To mitigate the fallout, India is accelerating trade diversification efforts with Europe, Latin America, Africa, and Southeast Asia.

Ongoing negotiations with the European Union have gained urgency, while the government explores additional export incentives, including favorable financing.

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