Analysts say the reduction in goods and services taxes is aimed at increasing demand in the wake of a 50% tariff on Indian goods.
Released on September 3, 2025
India has announced tax cuts on hundreds of consumer items, ranging from soap to small cars and small cars, to spurring small demand in the face of economic headwinds imposed by US President Donald Trump.
The measure comes as US tariffs came into effect last month, raising fears about a slowdown in the economy.
The Goods and Services Tax (GST) is being overhauled to simplify India’s complex four-tier system into two slabs and reduce taxation across the sector.
Sitharaman said the panel examining GST reforms approved reductions in consumer items such as toothpaste and shampoo from 18% to 5%, and from 18% to 28% on small cars, air conditioners and televisions.
The panel, led by Sitharaman, has now approved a two-rate structure of 5% and 18%, rather than four fees.
The new tax system earns premiums, including tax-free and life and health coverage.
The Finance Minister argued that GST reductions were not related to “customer disruptions,” and said they were part of the reforms planned for many years.
The federal and state governments are estimated to lose Rs 480 billion ($5.5 billion) due to cuts implemented from September 22, the first day of the Hindu Nablatri festival.
“Super luxuriousness and 40% tax on ‘sin’ products
Coupled with the personal tax cuts announced in February, GST cuts are expected to promote consumption in South Asian countries.
“Instead of streamlining GST rates, increasing consumption is more than neutralizing the potential impact of revenue,” said Soumya Kanti Ghosh, chief economist at SBI.
“The impact on the fiscal deficit is almost insignificant or even positive.”
The Panel has approved a 40% tax on “ultra-luxury” and “sin” products such as cigarettes, cars with engine capacity over 1,500 cubic centimeters (91.5cu-inch), and soda drinks.
The move is expected to drive sales for rapidly moving consumer goods companies such as Hindustan Unilever and Godrej Industries, as well as consumer electronics companies such as Samsung Electronics, LG Electronics and Sony.
Automakers such as Maruti, Toyota Motor and Suzuki Motor are expected to be big winners. The tax cuts Rush, sparked by Prime Minister Narendra Modi’s call for greater independence in India, pledged to lower GST by October last month, and to counter up to 50% of US tariffs.
After the tax cuts were announced on Wednesday, Modi said, “Wide range of reforms will improve the lives of our citizens and ensure that businesses will be easier for everyone, especially small traders and businesses.”
