New Delhi:
On 3 September 2025, India’s finance minister announced sweeping reductions in consumption taxes across hundreds of consumer products—from everyday essentials like soaps and shampoo to small cars—to boost domestic demand. The new Goods and Services Tax (GST) structure will take effect from 22 September 2025, just ahead of the festive season.
Tax restructuring details
The GST Council approved a major simplification of the system, reducing the multiple slabs into a streamlined two-rate structure of 5% and 18%, while retaining a 40% rate for luxury and sin goods.
Personal care items such as toothpaste, shampoo, soap and hair oil will now attract only 5% GST, down from 18%. Similarly, basic food products and household goods have been shifted into the lower slab. Small cars, televisions and air conditioners, previously taxed at 28%, will now be taxed at 18%. Life and health insurance policies have been made tax-exempt, while luxury products and tobacco will continue to attract the highest levy at 40%.
Fiscal impact and outlook
The government estimates the revenue loss from these tax cuts to be around ₹48,000 crore. However, policymakers expect the resulting boost in consumption to offset part of the shortfall. With demand expected to surge during the festive season, the reforms are also seen as a step to counterbalance external economic pressures, including rising U.S. tariffs.
Economists suggest that the tax cuts could lower retail inflation by up to one percentage point, providing additional relief to consumers.
Market and industry reaction
The announcement has been welcomed by industries and markets alike. Consumer goods companies and automakers are expected to benefit the most, as lower prices are likely to drive sales. Shares of FMCG and automobile companies rose sharply in anticipation of higher demand.
Retailers and textile firms have already begun announcing price cuts, while auto dealers are preparing for a surge in bookings ahead of Diwali.
Broader implications
The tax reforms are designed not only to boost consumption but also to simplify compliance for businesses. With nearly 90% of goods now falling under lower GST slabs, small businesses and artisans are expected to gain from easier taxation and increased consumer demand.
The move also aligns with the government’s broader push for self-reliance and economic resilience, ensuring domestic demand remains strong despite global trade challenges.
Conclusion
By cutting GST rates across hundreds of items, India has taken a major step to stimulate demand, ease inflationary pressures and give consumers festive relief. The success of the reform will depend on how effectively companies pass on the benefits and whether the demand boost can sustain momentum in the coming months.